SoftBank turns a profit on the sale of its Alibaba share, after its worst-ever quarter
- ByStartupStory | November 11, 2022
SoftBank Group Corp turned a profit for the first time in three quarters, as the Japanese investment conglomerate sold a significant stake in its crown jewel—Alibaba Group Holding—in order to generate cash at a time when the majority of its investments have plummeted due to the global tech downturn. SoftBank Group posted a net profit of 3.03 trillion yen ($21.77 billion) for the three months ending September 30, courtesy to a $5.37 trillion yen ($37 billion) gain from the early settlement of prepaid forward contracts utilizing Alibaba’s shares, according to regulatory filings.
Bloomberg reported that SoftBank’s board has authorized the early physical settlement of prepaid forward contracts involving around 242 million American Depository Receipts. After the settlement, which was scheduled to occur in August and September, SoftBank’s share in Alibaba was scheduled to decrease to 14.6% from 23.7% as of the end of June. With the actual settlement of contracts, firms relinquish their future right to repurchase the shares.
SoftBank’s Vision Fund investment branch, through which the Japanese conglomerate invests in firms, continued to lose money as it reported a loss of up to 1.38 trillion yen ($9.75 billion) on its investments, which negatively impacted the company’s profitability for the September-ending quarter. The Masayoshi Son-led investment group recorded a net loss of 397 billion yen in the prior year, with the Vision Fund subsidiary incurring an investment loss of almost 1.17 trillion yen. However, the corporation posted a modest profit of $251 million over the period of October to December 2021.
However, for the next two consecutive quarters, the Vision Fund investment unit of the Japanese investment conglomerate lost approximately $50 billion as investors dumped shares of high-growth technology companies, a type that the Japanese investment conglomerate favors most, due to rising global interest rates. SoftBank also announced the elimination of 150 positions in September at its Vision Fund divisions throughout the world. In the July-September quarter, however, two of SoftBank’s largest publicly listed portfolio companies—robotics Norway’s firm AutoStore Holdings and South Korea’s e-commerce firm Coupang Inc—gained 46 percent and 30 percent, respectively, allowing the Japanese investment conglomerate to become profitable.
SenseTime Group Inc, a Hong Kong-based artificial intelligence company, continues to lose money during the July-September quarter, with a 37% decline, after a 47% decline in April-June. Excluding AutoStore, Coupang, and SenseTime, the fair value of the Japanese investment conglomerate’s 36 listed portfolio companies across its two investment units—SoftBank Vision Fund 1 and SoftBank Vision Fund 2–was $24.8 billion less than its investment value of $40.5 billion as of September 30, 2022. The fair value of SoftBank’s 312 unlisted portfolio firms across its two investment entities decreased by $68.4 billion from its investment value of $75.6 billion at the end of the September quarter.
About SoftBank
SoftBank has been an active investor in India, investing over $14 billion in the country’s technology businesses. The majority of these investments have been made during the last five years. Since July of last year, three of SoftBank’s largest Indian portfolio businesses have been listed on India’s stock exchanges: PolicyBazaar, Paytm, and Delhivery. Since their IPOs, shares of Delhivery, Paytm, and PolicyBazaar have declined 30 to 50 percent. Paytm and PolicyBazaar were listed in November of 2016; Delhivery was listed in May of 2017.
According to SoftBank’s financial statements, the fair value of their $1.4 billion investment in Paytm as of September 30 was $0.9 billion. At the conclusion of the September quarter, the fair value of the Japanese investment conglomerate’s $0.2 billion investment in PolicyBazaar was $0.3 billion, while its $0.4 billion investment in Delhivery was $1 billion. In September, the Japanese investment firm allegedly marked down the value of IPO-bound Oyo, another significant gamble for SoftBank, by 20 percent internally. Oyo rejected the development, though.
In August, the company organized a meeting in Bengaluru between some of its top private Indian unicorns and India’s largest mutual fund managers in order to discuss business development and gain a better understanding of public market investors as these unicorns prepare for an eventual public listing. In May, SoftBank announced a record loss of 1.7 trillion yen for the fiscal year that ended on March 31, 2022, and said that it would reduce its investments by one-fourth in 2022 due to a downturn in the global financial markets. Interestingly, the Japanese investment company has not led any significant capital round in India since the beginning of 2022.
In addition, Masayoshi Son’s troubles have been compounded by the recent departures of two important senior-level executives from the Japanese investment company. Moneycontrol stated that one of SoftBank’s senior executives, Rajeev Misra, has left his major positions at the Japanese investment firm to establish and oversee a new fund. Misra’s decision to stand down from key positions at SoftBank occurred six months after the company’s chief operating officer Marcelo Claure left over salary issues.
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