Softbank's Interest in Uber Exposes Complex Web of Investments

 | Aug 08, 2017 | 9:00 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

aapl

,

qcom

,

fxcny

,

shcay

,

sftby

,

s

,

nvda

Softbank (SFTBY) has cemented its place among the ranks of the world's most-influential private-equity investors with its formation of the $93 billion Softbank Vision Fund, the biggest of its kind. That status is confirmed by Softbank's public confession that it is mulling an investment in ride-hailing rivals Uber or Lyft.

Investors in Softbank are gaining access to arguably Japan's most-exciting company. The company is well on its way to transforming itself from a staid telecom, parent of Sprint (S) , to a tech investment venture fund. But it's an incredibly complex web that Softbank is weaving.

Its holdings at times cooperate, at times compete, and even buy each other, making it very hard for investors to figure out what they're getting. The picture will only become murkier if Softbank goes ahead with an investment in Uber, although such a stake would give Softbank investors back-door access to the world's most-valuable privately held company.

"We are interested in discussing with Uber, we are also interested in discussing with Lyft, we have not decided which way," Softbank CEO and founder Masayoshi Son told reporters in discussing Softbank's latest earnings, according to Reuters.

"Whether we decide to partner and invest into Uber or Lyft, I don't know what will be the end result," he added.

It is the first time that Softbank has confirmed an interest in Lyft or in Uber, which at $69.8 billion is the world's most-valuable venture-backed company, according to Equidate, which tracks the funding rounds of private companies. 

Softbank has already declared an investment of $5 billion in China's leading taxi-equivalent, Didi Chuxing - which took on, defeated and then bought Uber's operations in China. That leaves Uber with a small stake in Didi Chuxing.

At $49.9 billion in valuation, per Equidate again, Didi isn't too far behind Uber in market weight. In fact, Uber and Didi are neck and neck if the estimate by The Information is correct that Uber's recent travails and the ousting of CEO Travis Kalanick wiped $10 billion off Uber's value.

Softbank is also a backer of Grab, the Uber equivalent in Southeast Asia. So is Didi. Investing alongside each other, Didi Chuxing and Softbank reportedly chipped in most of a $2.5 billion funding round that Grab was raising last month.

Didi, in fact, appears to be backing as many of Uber's rivals as it can. But perhaps that's only because Uber is ubiquitous (well, not exactly, but it seems like it, if you travel in the developed world.)

Almost immediately after Son confirmed his interest in Uber, Didi said it would back Careem, Uber's Dubai-based enemy in the Middle East and majority-Muslim nations such as Pakistan and Turkey.

Didi, which didn't declare the size of its stake in Careem, has also invested in Lyft in the United States and in Taxify in Europe - again, both competitors of Uber. Taxify has been expanding west from its Eastern European base in Estonia and now operates as far afield as Lagos, Nairobi and Johannesburg. It is expanding into London and Mexico City.

A stake in Lyft might therefore make more sense for Softbank, since it's a direct Uber competitor. But would Son do that directly through Softbank, its investment arm Softbank Group Capital, or the Vision Fund? Or all of the above?!

In these latest financials, for the 2017-18 fiscal first quarter ending June 30, Softbank lists Didi among 10 holdings in the "strategic synergy group" participating in the "information revolution." Those are listed under the Softbank Vision Fund in the presentation -- with the helpful footnote: "(Note) The investment in Didi is not from SoftBank Vision Fund."

That's all clear, then. Softbank has approved the transfer of ¥483.3 billion ($4.4 billion) in equity stakes in Nvidia (NVDA) and Guardant Health, a non-invasive cancer diagnosis company, into the Vision Fund. Ultimately, it plans to swap in the Didi stake. Softbank is also selling 25% of the British chipmaker ARM to the Vision Fund, while hanging on to 75% itself.

Are all these transactions being done at arm's length? You'd have to wonder. And what happens when Softbank ends up with board seats on companies that fiercely compete?

The Vision Fund may carry Softbank's name, but it is not Softbank. It is being advised by wholly owned subsidiaries of Softbank, but its investors include Apple (AAPL) , Qualcomm (QCOM) , Taiwanese Apple parts supplier Foxconn (FXCNY) , the Japanese electronics maker Sharp (SHCAY) (which Foxconn owns) -- and the sovereign wealth funds of Saudi Arabia and the United Arab Emirates. 

The complications of owning stakes in competing interests are shown by Softbank's seed investments in India, which so far haven't yielded much fruit.

Softbank was pushing for a merger between e-commerce marketplace Snapdeal and its larger competitor Flipkart. But the merger fell apart at the end of July after Snapdeal's founders balked at terms such as a noncompete agreement with their rival.

Softbank invested $200 million directly in Snapdeal, a stake it still holds. Now the Softbank Vision Fund is reportedly in talks to invest $1.5 billion to $2 billion in Flipkart. Flipkart's existing backers include e-Bay, Tencent Holdings and Microsoft.

Softbank said when the Snapdeal-Flipkart sale fell apart that it looks forward to seeing the results "of the Snapdeal 2.0 strategy," which involves selling off parts of the company. While hoping, if it goes ahead with the Vision Fund investment, that Flipkart wins its business.

Softbank is hedging its bets by placing money in competing entities. But on ride hailing, the "strategy," if there is one, looks a lot like dishing out chips on a roulette table.

It's tough to bet against Son, who is well on his way to becoming Asia's version of Warren Buffett, and a tech savvy one at that. But however many bases you cover at roulette, the house eventually wins. Sooner or later we'll have to ask: Is Softbank spreading itself too thin?

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.