SoftBank Group (SFTBY) (GB:0I7I) shares are down 32.3% over the past 12 months and its record $23.4 billion first-quarter loss highlights the toll global macro headwinds are taking on the company.
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Is SoftBank Losing Money?
While revenue increased 6.3% over the prior year to ¥1.57 trillion yen, the net loss reached a record high of $23.4 billion. Including the last quarter, SoftBank has now incurred a total loss of ¥6 trillion.
The Chairman and CEO of SoftBank, Masayoshi Son began the Q1 conference with the drawing of Tokugawa Ieyasu, the Japanese General who went into battle knowing a loss was imminent, lost the battle but learned from his failings and went on to become the Shogun of Japan!
Son noted this loss pretty much wiped out last year’s gains of ¥5 trillion, and while he was proud of himself over the gains last year, now he feels embarrassed and has learned his lesson.
Vision fund 2 (started with its own money by SoftBank) has made a chunk of investments in private names, and as liquidity tightens, private names that are yet to turn a profit are losing value faster than their listed peers. To be specific, 277 companies in SoftBank’s portfolio have yielded a valuation loss, while 119 saw valuation gains at the end of June. Furthermore, a weak Yen is compounding problems as half of SoftBank’s borrowings remain dollar-denominated.
Additionally, amid a market rout, major listed investments such as Alibaba (BABA) (GB:0HCI) have also been going sour. Son noted that SoftBank is now in defense mode, but some of the total 473 companies in the Vison funds’ portfolio remain important assets for the future.
Finally, Mr. Son added that the current market scenario makes him want to invest more but he wants to ensure that the company won’t lose big while SoftBank also focuses on streamlining costs.
Analyst’s Take
As SoftBank continues to face a number of headwinds, Wall Street has a Moderate Sell consensus rating on the stock. A TipRanks Smart Score of two also suggests caution is warranted and shares may underperform the broader market.
Hedge Funds
Hedge funds, too, are jumping the ship and have decreased holdings in the stock by 77,100 shares in the last quarter alone. Ken fisher’s Fisher Asset Management has trimmed its SoftBank holdings by 37.4% as well.
Closing Note
With a focus on cash, SoftBank has already offloaded its Uber (UBER) (GB:0A1U) and Opendoor (OPEN) stakes and is looking for smaller ticket-size transactions with a focus on profitability. The company is also looking to reduce its headcount as pressure mounts.
For Son, a veteran of market booms and busts, the market rout may feel like a Deja Vu, but one should not be surprised if SoftBank manages to bounce back strong once again.
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