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Bouncing back from a 2019 loss and splash as the Nasdaq Whale, SoftBank Group rides IPOs to profits that are a Japanese record. But can it continue?
May 12, 2021
The Tokyo Olympics won't start for another two months but SoftBank Group is already toppling records.
The group has just notched the highest ever annual net profit for a Japanese company, at ¥4.98 trillion (US$46 billion) for the year ending on March 30, 2021.
By contrast, Toyota owned the previous record profit, a mere ¥2.5 trillion ($23 billion) in 2017-2018. SoftBank has doubled that mark.
This was also a tidy turnaround, after a loss of ¥961 billion ($8.84 billion) for the year before. It makes the Tokyo company the world's third most profitable, trailing only Apple and Saudi Aramco.
The equity markets were kind to Masayoshi Son's conglomerate.
Even in a year when SoftBank Group was unmasked as the Nasdaq whale, buying billions of tech stock options which ultimately incurred the company a $1.3 billion loss, it made it back with fortunate stakes in initial public offerings.
As a case in point, a $2.7 billion stake in South Korea's e-commerce and logistics giant Coupang turned into a $28 billion one when that company went public in March on the New York Stock Exchange.
America's food delivery app DoorDash proved another lucky bet. With a 56% market share in US food delivery during the coronavirus pandemic, its December 2020 IPO raised $3.37 billion.
There are more IPOs to come. TikTok owner ByteDance (of which SoftBank Group owns 3%) is one; China's ride-hailing business Didi Chuxing (where it has a chunkier 20% stake) is another.
Live by the IPO, die by the IPO
That's the good news.
The bad is that since the end of March, there's been a gargantuan sell-off in US tech stocks, after concerns about inflation, stoked by government coronavirus relief, spooked investors.
So Coupang's valuation, which had soared as high as $118 billion, has sunk quickly to $62 billion.
Uber (where SoftBank's stake is 10%) and KE Holdings, which owns China's Beike Zhaofang, a property platform, both have fallen by 15% in value since the start of April.
Such are the downsides of SoftBank Group's switch of focus to tech investment, with its $100 billion Vision Fund and a smaller second fund.
This being Japan, Masa Son's conference call remarks to analysts included a moment of CEO penance.
"WeWork... Katerra, many investments which failed. Those are my regrets," he said.
A slide on the earnings deck read: "Many regrets. Failed investments, missed investment opportunities, lack of systematic approach. Issues to be addressed sincerely."
You couldn't quite picture Elon Musk saying it. Even if one of the very next slides read, "SoftBank Group, producer of golden eggs."
Golden egg watch
SoftBank Group will now be looking to ride the tides of frothy valuations and regulators grabbing their spectacles to replicate that performance.
Regulators are particularly keen to take a closer look at the currently booming crop of special purpose acquisition vehicles (SPAC). Like the ones space-sharing company WeWork and ride-hailing business Grab will use for their planned listings. Both companies are subjects of sizable SoftBank bets.
SPACs have raised about $100 billion so far in 2021, up from a record $83.4 billion in all of 2020.
These are shell companies created by investors, to raise money by an IPO for the purposes of acquiring an existing company.
They're often called "blank check" vehicles, since investors put up their pennies, and then sponsors choose a takeover target.
Market regulators like the US Securities and Exchange Commission have suggested they may weigh in to require SPACs disclose more information about potential conflicts of interest between the sponsors and the targets they pick.
And if the SPAC boom starts to show signs of falling apart, the SEC may tighten rules further and say, for instance, a certain percentage of funds must be committed to an identifiable particular investment.
This wouldn't be great for, for example, WeWork and Grab's current paths to listing.
Masa the Hut
Another big bet to watch, in terms of SoftBank's fortunes in this coming year, is a 10% stake worth $730 million the group just took in Manchester-based THG – the company formerly known as the Hut Group.
THG includes an e-commerce outsourcing unit, THG Ingenuity, where SoftBank has an option to buy a 20% stake for $1.6 billion.
Interested in Asia? Check out our dedicated content channel here on Light Reading.
But what does Ingenuity do? Its CEO Matthew Moulding calls it a "social media influencer platform."
However, it also handles logistics and translations for other businesses launching in new markets, something that could prove better for the bottom line.
Read more about:Asia
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