- Vision Fund unit reported a $10 bln investment loss
- Shares in e-commerce firm Coupang lost a third during quarter
- Ride-hailer Didi valued 40% below acquisition cost
- SoftBank will spend up to Y1 trln buying back shares
As SoftBank Group Corp (9984.T) Vision Fund unit took a $10 billion hit from a decline in the share price of its portfolio companies and as China’s regulatory crackdown on tech firms weighed, it slumped to a quarterly loss on November 8, 2021.
While the value of its assets slid, the Japanese tech conglomerate said its stock is undervalued and will spend up to 1 trillion yen ($9 billion) buying back nearly 15% of its shares.
Monday’s results underscore the headwinds for the investment business although CEO Masayoshi Son has likened SoftBank to a goose laying “golden eggs”.
“We are in the middle of a blizzard,” Masayoshi told a news conference, adding that in the quarter he was “not proud” of the Vision Fund’s performance. Nevertheless, he said the company was making steady steps to double the numbers of “golden eggs” compared to last year.
Chinese e-commerce firm Alibaba, the group’s largest asset portfolio, saw its valuation fall by around a third in the second quarter. Its stake in Chinese ride-hailer Didi (DIDI.N), acquired for $12 billion, was valued at $7.5 billion.
Online retailer Coupang, which gave up a third of its value, was another notable hit.
Redex Research analyst Kirk Boodry said:
“The strategy of let’s create the perception of enhanced value by taking things public hasn’t really worked this year.”
The change in the value of the group’s assets rather than profit is the primary measure by which performance should be gauged, according to Son. In the three months to September, asset values plunged by 23% to $187 billion.
Son said that the conglomerate has the capital to do repurchases now, while SoftBank shares trade at around a 50% discount, lower than a record gap that triggered the launch of an eventual 2.5 trillion yen buyback last year. He added:
“I am excited because we are discounted compared to our true strength.”
While aiming to enhance returns, investors have been calling for a buyback. To potentially launch a management buyout repurchased shares will be retired, a move that lowers the bar for Son, SoftBank’s top shareholder. Boodry said:
“The buyback gives them a crude lever to influence the discount the shares trade at.”
He added that the more gradual pace it adapted may reduce share price volatility.
The future upside for the Vision Fund includes its India portfolio with ride-hailer Ola and logistics firm Delhivery targeting listings.
In an interview, Navneet Govil, Vision Fund’s chief financial officer, told Reuters:
“The pipeline is very robust.”
“What will provide further valuation gain is the planned listing of Southeast Asian ride-hailer Grab via a merger with a special purpose acquisition company (SPAC).”
Compared to a profit of 628 billion yen a year earlier, is the group’s net loss of 398 billion yen ($3.5 billion). Vision Fund’s investment loss totaled 1.167 trillion yen.
Following the expiry of lock-up periods, SoftBank has been raising capital by trimming stakes in companies such as ride-hailer Uber Technologies (UBER.N) and food delivery firm DoorDash (DASH.N).
Having returned $9.8 billion to investors, the group is focusing on investing through its second Vision Fund that has $40 billion in committed capital from SoftBank and Son himself.
At the end of the quarter, the second fund had invested $33.5 billion in 157 startups. Of those firms, eight have already been listed.
Ahead of earnings on Monday, SoftBank shares, which have lost around a quarter this year, closed down 0.77% at 6,161 yen.
($1 = 113.3500 yen)