SoftBank’s big bet on listed tech stocks cost it $1.3 billion

 SoftBank’s big bet on listed tech stocks cost it $1.3 billion

SoftBank, the Japanese conglomerate founded by Son, on Monday posted losses of 131.7 billion yen ($1.3 billion) “from investment in listed stocks and other instruments” for the six months ended in September.

The Wall Street Journal and the Financial Times reported on Son’s big bets in September. The Journal said that SoftBank had bought roughly $4 billion worth of options tied to underlying shares it had earlier purchased in companies such as Amazon (AMZN), Microsoft (MSFT) and Netflix (NFLX), generating an exposure of about $50 billion.

Some observers called the SoftBank founder and CEO as a Nasdaq “whale” — a heavy hitter with the power to move markets on his own.

Son dismissed the description on Monday, describing SoftBank’s latest strategy of investing in highly liquid, blue chip companies and derivative products as “a pilot program.”

“When you say derivatives, it sounds very risky, but it’s only 1% of the total value of our holdings,” he said through a translator at the company’s earnings presentation. If the investments fail, “the damage is only 1%-2% [of SoftBank’s total equity holdings], so just a tiny fraction of the whole picture,” he added.

And Son can tout investment gains elsewhere.

The Vision Fund, SoftBank’s massive tech investment vehicle backed by Saudi Arabia, is back in the money again. Its investments in 83 companies, which cost $75 billion, were worth $76.4 billion at the end of September, the company said.

The fund also booked gains of 141.4 billion yen ($1.4 billion) for the six months that ended in September after it sold shares in four companies and cashed out of six others, SoftBank said in a filing. The filing did not disclose which companies the fund exited.

Companies backed by the Vision Fund “are shifting their focus from top-line growth to profitability, and competition may have eased,” Daiwa analyst Yoshio Ando wrote in a note last month.

But “much hinges on whether [SoftBank] can discover new types of industries to invest in or whether key firms in the [Vision Fund] can carve out a new future,” he added.

The smaller Vision Fund 2, meanwhile, posted unrealized gains of 537 billion yen ($5.2 billion) thanks to an increase in the share price of a company that went public in August.

SoftBank shares dive on reports that Masa Son has been betting big on tech stocks

SoftBank also reported net income of 627 billion yen ($6 billion) for the July-September quarter, reversing losses of 700 billion yen ($6.8 billion) suffered in the same period last year. The latest earnings report did not disclose operating profit. SoftBank dropped the profit measure after its increasing focus on tech investments left the metric battered at times by paper revaluations.

Shares in SoftBank (SFTBY SOFTBANK) closed up 5.4% in Tokyo before earnings were released, outperforming the broader Nikkei 225 (N225).
Share buybacks, fueled by a fire sale in assets, have helped push SoftBank’s stock to a near 20-year high, giving the company a market value of 14.8 trillion yen ($143 billion).

SoftBank has sold nearly $100 billion worth of assets

Son said the company has far exceeded its initial goal announced in March to sell 4.5 trillion yen ($43.4 billion) worth of assets.

SoftBank has sold 10 trillion yen ($96.5 billion) of assets so far this fiscal year, he said, including selling down a stake in its Japanese mobile carrier group and the sale of British chip designer Arm to US chip company Nvidia (NVDA), which has not yet been approved by regulators.

Asked if he would use some of that windfall to form a blank check investment firm (also known as a special purpose acquisition company, or SPAC) to hunt for more unicorn tech companies, Son deflected.

The CEO said he would “consider a variety of options available” to ensure SoftBank is in a position where it has large cash reserves, and can still aggressively invest in more tech companies.

There have been multiple reports that Son is considering taking SoftBank private, and as in past presentations, he spent a good amount of time dwelling on his belief that SoftBank’s stock is deeply undervalued.

But Son on Monday declined to comment on reports of a management buyout.

Management shake up

SoftBank also announced changes to the company’s board of directors.

Chief operating officer Marcelo Claure, chief strategy officer Katsunori Sago, executive vice president Rajeev Misra and governor and board member of the Public Investment Fund of Saudi Arabia Yasir Al-Rumayyan resigned as of Monday.

The move brings the size of the company’s board down to nine members with a greater proportion of outside board directors, SoftBank said.

Three of the resigning board directors — Claure, Sago and Misra — have now been appointed as corporate officers of SoftBank, along with Son.

“It’s not like Masa is firing Marcelo,” Son said at the earnings presentation. “We just want a clear distinction between management and execution.”

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