SoftBank Group, a prominent Japanese technology investor, is poised to reveal a return to losses when it unveils its earnings on Monday, despite the positive trajectory of its core asset, Arm Holdings, and other technology stocks during the quarter.
Investors and analysts alike are eagerly awaiting insights into SoftBank’s strategies for new growth investments, given its substantial liquidity and the potential for monetization of its significant holding in Arm.
Arm Holdings, in which SoftBank maintains a commanding 90% stake, witnessed its share price doubling in February following robust earnings results, propelled by optimism surrounding the adoption of generative artificial intelligence (AI). However, it’s important to note that Arm’s profitability does not directly influence SoftBank’s earnings, as it operates as a wholly-owned subsidiary within the conglomerate’s portfolio.
While some of SoftBank’s other listed assets, such as Coupang and DoorDash, experienced positive performance, others like DiDi Global and Grab Holdings witnessed declines. The subdued nature of the initial public offering (IPO) market has left analysts uncertain about the potential for monetization of SoftBank’s portfolio of unlisted tech startups.
Forecasts suggest SoftBank is likely to post a net loss of 72 billion yen ($462.70 million) for the January-March period, marking a reversal from the 985 billion yen net profit recorded in the previous quarter.
SoftBank’s management has communicated its readiness to pursue new growth investments, albeit with a cautious approach. While new investments remained minimal in the preceding quarter, analysts speculate that SoftBank may be contemplating a significant acquisition akin to its $32 billion purchase of Arm in 2016.
To finance potential investments, SoftBank could tap into its existing liquidity, utilize proceeds from bonds issued in March, and negotiate a margin loan against its Arm stake. However, the concentration of Arm within SoftBank’s portfolio poses risks, particularly in the event of a shift in market sentiment, which could impact SoftBank’s valuation and fundraising capabilities.
Presently, Arm trades at premium valuations compared to its competitors, prompting some analysts to caution that this may not be sustainable in the long run. Disappointment over Arm’s annual revenue forecast at its recent quarterly earnings contributed to a decline in its share price, underscoring the potential risk of a major reevaluation.
As SoftBank prepares to disclose its earnings, investors and analysts will closely scrutinize the report for insights into the company’s strategic direction and potential investment opportunities in the evolving technology landscape.