These have been incredibly tough times for the SoftBank Group T:9984 and (SFTBY) , one of Japan's most exciting companies, and one of the world's biggest tech investors. Pundits started second-guessing founder Masayoshi Son's vision, and wondered if he had lost his Midas touch when it came to picking tech winners.
For the most part, he's simply been a victim of macro conditions, largely precipitated by the U.S. Fed raising interest rates and China's crackdown on Big Tech. You don't suddenly become a bad tech investor because there's a downturn.
Today's results are therefore a vote of confidence. The earnings presentation starts with a photo of a bright light at the end of a granite railway tunnel, headlined "Signs of change." And that is indeed what the numbers represent.
It's not all good news. SoftBank Group as a whole still turned a loss, when many analysts expected the broader company to move into the green. But the SoftBank Vision Fund, its flagship investment entity, turned a profit of ¥61 billion (US$426.7 million), for the quarter through June.
That's a dramatic improvement after the Vision Fund posted a record loss of a whopping ¥4.3 trillion (US$30.1 billion) for the last fiscal year. The dismal performance prompted Son to say SoftBank had entered "defense" mode to protect itself. He has admitted he even wondered if it was the end for himself as an investor.
It's now time to play a little offense. SoftBank as a whole still posted a ¥477.6 billion (US$3.3 billion) quarterly loss in these latest numbers, reported after the bell in Tokyo on Tuesday, but its investments are once more headed in the right direction, so it's hard to imagine that the number for the next full year will not record decent or perhaps outsize gains.
These June numbers are Q1 figures for SoftBank, since it has a fiscal year that runs through March 2024. This latest Q1 loss was an improvement from the massive ¥3.2 trillion (US$22.1 billion) hit to the bottom line for the group the same time last year. However, analysts polled by Reuters had expected a ¥75 billion (US$525 million) profit.
Nasdaq is now up 34.7% year-to-date, with fairly sustained and steady gains when you look over the course of the year so far. It was the best-ever first half to the year for the Nasdaq 100. Much of that advance has come from the "Magnificent Seven" stocks: Alphabet (GOOGL) , Amazon.com (AMZN) , Apple (AAPL) , Meta Platforms (META) , Microsoft (MSFT) , Nvidia (NVDA) and Tesla (TSLA) .
SoftBank shares rose 1.5% today ahead of the earnings, and have now advanced 24.5% in 2023. That's essentially on par with Tokyo stocks as a whole, though, with the Topix broad-market index up 22.7% this year. I'd expect SoftBank to outperform once it hits its stride again.
Son said in June that he would look to start investing in tech startups again "soon," recharged by the prospects for new applications of Artificial Intelligence. He said the sudden downturn for the Vision Fund, which launched in 2017, left him feeling drained.
"Since October, I've been asking myself how many years I have left," Son, who is 65, told shareholders at the company's annual meeting. "There were times when I felt so empty. 'Is this enough? Is this it?' I cried and cried and couldn't stop crying for days."
He is now looking to cement his legacy as well as rediscovering his knack for unicorn hunting. "I wanted to become an architect to build the future of humankind," he told the shareholder's meeting. "I may not achieve everything - I may as an individual may not be enough - but I want to play a role," he said, adding that the "time has come to shift to offense mode."
SoftBank's stock has struggled mightily since a recent peak in March 2021, as the company posted two straight financial years of losses. In the year from March 2021, the shares lost more than half their value, down 57.8% from top to trough.
They have surged since May, however, and have advanced rapidly, up 41.9% since May 12. That means they turned higher later than the broader Tokyo market, and should still have legs to the rally.
The group is also looking to list the British chip designer Arm, which SoftBank acquired in 2016. Arm filed in April to list on Wall Street, although SoftBank says today that it intends to maintain a majority stake and continue holding Arm as a subsidiary even after the initial public offering.
Under SoftBank's control, Arm has been directed to reinvest all its profits to enter new markets. Those efforts should soon start to pay off. Arm notched a ¥9.5 billion (US$66.4 million) loss for Q1 as sales slid 4.6% compared with the same quarter last year to ¥88.5 billion (US$618.1 million).
There are signs that the glut of semiconductor chips on the market is easing, and the downturn in that segment coming to an end. If and when Arm does go public, it may seek a valuation of US$60 billion to US$70 billion, with an offering likely to occur in Q4.
That would make Arm the third-largest tech listing, following Alibaba Group Holding (BABA) and HK:9988 and Meta. SoftBank would stand to gain from the recovery in Arm's chip business as well as the investment plans that it is now putting in place.
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