SoftBank: forget record profits, investors want buybacks
In 1981, in a small town in Fukuoka, SoftBank chief executive Masayoshi Son told two employees that his company would one day be valued at billions of dollars. According to the story he gave during an earnings call on Wednesday, the employees did not stick around. Even Son may not have expected SoftBank’s market value to reach $174bn. Now that the conglomerate has returned to profit it could climb even higher.
Record net profit of ¥4.99tn ($45.9bn) for the year to March came mostly from SoftBank’s Vision Fund investment unit. Net asset value has grown $36bn from the previous year to $236bn. Son is no longer beset by criticism that Alibaba is his only winning bet. Alibaba, which at one point made up as much as 60 per cent of SoftBank’s net asset value, is now worth 43 per cent.
Yet shares fell 3.5 per cent on Wednesday. This reflects concern that most of SoftBank’s profits remain unrealised. Of the 125 portfolio companies in SoftBank’s two Vision funds, gross returns depend on just a few companies. Coupang, DoorDash and Uber make up 80 per cent of the first fund’s gross return.
This is why SoftBank share moves in the past year have closely tracked announcements of its buyback schedule, instead of being focused on earnings. Shares doubled in the past year after it started a ¥2.5tn buyback programme. Those buybacks have ended.
Replicating the past year’s results depends on continued strength in US tech markets, which have dipped in recent weeks — though the moves may not be sustained.
Returns from other parts of the group need a boost too. Despite a rally in stock prices, the group’s trading arm, SB Northstar, and the broader group booked a $233bn loss on investments in listed stocks and derivatives.
Money is just a tool, says Son. He believes his vision is the most important part of SoftBank. For investors, a further round of buybacks would prove more convincing.
Our popular newsletter for premium subscribers Best of Lex is published twice weekly. Please sign up here.