SoftBank Group Corp (9984.T) is facing storm clouds as it prepares to announce third-quarter earnings on Tuesday, with top portfolio company values dropping and heavyweights exiting the Japanese technology conglomerate.
Ride-hailing operator Didi Global (DIDI.N), e-commerce startup Coupang, and used-car marketplace Auto1 Group are among the SoftBank assets that went public in the previous year and are now trading below their initial public offering price (AG1G.DE).
Artificial intelligence business SenseTime (0020. HK) was a bright spot in the quarter that ended Dec. 31, but others, such as Paytm parent One 97 Communications (PAYT.NS), underwhelmed.
“The valuations they’ve made just haven’t held up,” said Redex Research analyst Kirk Boodry. “There’s a lot more skepticism.”
The new year has offered little respite to Chief Executive Masayoshi Son: January was a bruising month, as investors turned away from growth stocks promising future profits.
“This looks to be a far more critical time for SoftBank than in 2020, when some of its big bets like WeWork and Oyo had gone sour,” Asymmetric Advisors analyst Amir Anvarzadeh, who recommends shorting the firm, wrote in a note
SoftBank is having trouble persuading investors to revalue its stock, which has fallen by nearly half from its March highs. In November, the company announced a buyback of 1 trillion yen ($8.7 billion).
In a commentary on the Smartkarma platform, LightStream Research analyst Mio Kato said, “We aren’t confident that anything other than substantial markdowns will allow markets to proclaim that the downside risk is all priced in.”
As the firm closes down its SB Northstar trading arm, money is being funneled into its second Vision Fund, which has invested in more than 150 firms for a lesser amount than the first.
One major reason for the group’s buyback last year was ongoing executive frustration at the size of the conglomerate discount or the gap between the value of its assets and its share price.
The sale of chip designer Arm to Nvidia, which could have unlocked funds for further share repurchases, is widely expected to fall through because of regulatory hurdles. An initial public listing is seen as an alternative but analysts question the prospects for such a move.
“We are skeptical that an outright IPO of Arm will result in value creation for SBG shareholders,” Jefferies analyst Atul Goyal wrote in a note.
Other holdings include interests in Alibaba, whose stock has plummeted as China’s internet sector is hit by regulatory action, and telco SoftBank Corp, which is trading below its initial public offering price.
Top executives have left the company, including Chief Operating Officer Marcelo Claure. As SoftBank prioritizes investing through that unit, Vision Fund chief Rajeev Misra’s crucial role is cemented.
