After reporting record losses in May and warning the coronavirus outbreak could be as devastating as the Great Depression, SoftBank Group Corp founder Masayoshi Son is already poised to declare a recovery.
When it announces results next week, the Tokyo-based company is projected to report operating income of more than $1bn for the quarter ended in June, according to analyst estimates. The Vision Fund is likely to post a profit, three months after a $17.7bn loss on tumbling valuations for its portfolio companies.
Son, who suffered disaster on top of fiasco in the months through March, has had almost everything go his way since then. A global rally in tech shares has lifted the value of SoftBank’s stakes in publicly traded firms like Uber Technologies Inc and Alibaba Group Holding Ltd The initial public offering market has turned red-hot, boosting the prospects for his portfolio of about 90 startups. SoftBank’s shares have climbed to a two-decade high with the help of record buybacks.
“For the next few years, valuations will continue to rise and Son will look like a genius investor again,” said Atul Goyal, senior analyst at Jefferies Group. “Considering how much the overall stock markets have climbed recently, it’s only natural that private valuations at the Vision Fund should rise too.”
SoftBank uses a number of approaches to value its stakes in private companies, including taking cues from their latest financing rounds and the valuations of publicly traded rivals. The exact mechanism is not disclosed, which makes earnings at the Vision Fund something of a black box. But after taking massive writedowns across the board in the last fiscal year, for most portfolio companies that remain in business the only way is up. Below are the key things that have boosted Son and SoftBank’s fortunes since March.
The tech rally: After a broad plunge in markets early this year with the coronavirus outbreak, tech stocks have been surging worldwide. Nasdaq, driven by the likes of Apple Inc and Amazon.com Inc, climbed more than 30% in the second quarter.
For SoftBank, Uber rebounded 11% last quarter after tumbling in the first quarter, and is now trading around the $33 price the Japanese company paid in early 2018. That may allow SoftBank to mark up the valuations of its other ride-hailing startups, the most significant part of its portfolio with stakes in Didi Chuxing in China, Southeast Asia’s Grab and Ola in India. SoftBank-backed Slack Technologies Inc, the workplace-collaboration software company seen as a key beneficiary of the pandemic, climbed about 30% this year. ZhongAn Online P&C Insurance Co rose about 75%. Guardant Health Inc, a cancer-detection company in which the Japanese conglomerate is the largest shareholder, added 17% last quarter.
IPO thaw: WeWork’s implosion and Uber’s disappointing debut last year were seen as a signal the public markets were wary of the fast-growing, money-losing companies that SoftBank tends to back. But investors’ appetite for riskier equities has been rekindled, perhaps by the tech rally and central banks’ aggressive actions to fight the pandemic.
One marquee SoftBank investment is the online home-insurance provider Lemonade Inc, which more than doubled since its initial public offering last month. SoftBank owns a 21.8% stake that is now worth about $750mn, more than double its investment last year. Lemonade has yet to turn profitable since its inception in 2015. Oncology drug developer Relay Therapeutics Inc surged more than 85% since its trading debut last month. The Vision Fund invested $300mn in Relay in 2018 and holds a 41% stake in the company. Relay had a net loss of $75mn for 2019.
The successes could pave the way for more listings from the fund, helping Son deliver on his promise of several IPOs a year. Beike Zhaofang, a Chinese online property brokerage, is planning an offering within a month, according to a person familiar with the matter. SoftBank in January invested $1.3bn at a $10bn valuation, which is likely to double in the IPO, the person said, asking not to be identified because the details are public.
DoorDash Inc, a food delivery company, in February filed paperwork for a public stock listing. Online insurance platform Policybazaar and South Korean e-commerce giant Coupang Corp are also preparing for offerings in 2021.
Sell, sell, sell: Son, who was long criticized for his unwillingness to exit investments, has been on an unprecedented selling spree in the past few months. SoftBank is in the process of offloading ¥4.5tn in assets, including stock in Alibaba, T-Mobile US Inc and its domestic telecom unit. The proceeds will be used to fund share repurchases and to pay down debt.
SoftBank is also selling its stake in OSIsoft LLC. Son paid close to $1bn for a 45% stake in 2017, valuing the industrial software maker at $2bn at the time, according to the person familiar. The company is now in talks for a sale at more than $4bn, Bloomberg News has reported.
By far the biggest deal would be the sale of the sale of Arm Ltd, the chip designer SoftBank bought for $32bn four years ago.
Nvidia Corp is in advanced talks to acquire the company and the two parties aim to reach a deal in the next few weeks, according to people familiar with the matter.
SoftBank sold a 25% stake in Arm to the Vision Fund for $8bn, as part of its capital contribution to the fund.
Buyback bonanza: SoftBank shares have soared more than 140% from their March low to hit a two-decade high. The billionaire has long complained that the shares are traded at less than the value of its portfolio of investments, but this year he made his most concerted effort to narrow the gap.
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