SoftBank Group’s  share price plummeted when its role as the so-called Nasdaq whale emerged, pinning the September tech sell-off on the Japanese multinational firm. However, SoftBank’s share price has rallied since. At the start of October, reports were circulating that the company was up to its old tricks again as hundreds of millions of dollars in option trades emerged in the US. What impact has this had on SoftBank’s share price?
As of close on 5 November, SoftBank’s share price registered a 46.6% year-to-date increase. Furthermore, SoftBank’s share price has soared 163.3% from its 52-week low of JPY2,609.50 on 19 March.
From the start of the trading year until 2 September — the day many big tech companies hit all-time or 52-week highs before experiencing sharp pullbacks — SoftBank’s share price had risen 40.4%. Then, between 3 and 10 September, SoftBank’s share price pulled back 11.3% before quickly recovering its losses. Shares in the company climbed to an intraday high of JPY7,300 before closing at JPY7,244 on 19 October. The sudden downturn in its share price saw JPY8.6bn wiped off the company’s valuation on 8 September alone.
Regulatory filings seen by The Wall Street Journal showed that SoftBank had bought close to $4bn of shares in Amazon [AMZN], Microsoft [MSFT], Netflix [NFLX] and Tesla [TSLA] in an aggressive stock option bet.
Masayoshi Son, CEO of SoftBank, had seen his company swing from big losses to big gains in recent quarters. On 18 May, SoftBank reported an operating loss for the fiscal year 2019 of JPY1.4trn — its first annual loss in 15 years. It also reported a net loss of JPY961.6bn, down from the JPY2.4trn it had posted for the previous fiscal year.
The significant losses in its Vision Fund were the driving force behind the poor earnings. The fund lost JPY1.9trn in the twelve months ended 31 March and a further JPY10.4bn in the fourth quarter alone as SoftBank wrote down its investments.
The Vision Fund plunged in valuation after reporting $17.2bn in losses from investments, including a $5.1bn loss from Uber Technologies [UBER], $4.5bn through WeWork and a further $7.5bn of losses from the rest of its portfolio. The losses from Uber’s uninspiring IPO and WeWork’s collapse were compounded by the impact of COVID-19.
“The situation is exceedingly difficult,” Son said during the earnings call. “Our unicorns have fallen into this sudden coronavirus ravine. But some of them will use this crisis to grow wings.”
“The situation is exceedingly difficult. Our unicorns have fallen into this sudden coronavirus ravine. But some of them will use this crisis to grow wings” - Masayoshi Son, CEO of SoftBank
To help it to navigate the uncertainty the coronavirus pandemic presented, the company announced that it planned to spend up to JPY500bn buying back shares by the end of March 2021. SoftBank’s aim was to raise JPY4.5trn to cut its debt and enhance its cash reserve. By 3 August, it had sold JPY4.3trn worth of assets.
In the first quarter of fiscal year 2020, the company returned to profitability, reporting a net profit of JPY1.31trn, an 11.8% year-over-year increase.
While the majority of the profit came from its telecoms business — and the gains made from T-Mobile’s [TMUS] merger with Sprint — the Vision Fund accounted for JPY296.6bn of gains. For the three month period ended 30 June, the Vision Fund clocked an unrealised gain on valuation of JPY258bn from 86 investments.
SoftBank's Q1 fiscal 2020 net profit - an 11.8% YoY rise
Making the most of capital markets
Ongoing uncertainty from the pandemic had thrown SoftBank’s plans for a $108bn Vision Fund 2 — first announced in July of last year — into doubt. However, it has since been announced that the company will be investing in its own special acquisition company (SPAC), with Vision Fund 2 handling the SPAC.
“Softbank is making the maximum use of the capital markets. Son has name value, so it won’t be difficult for them to raise money through a SPAC,” Kazumi Tanaka, an IPO analyst at Tokyo-based DZH Financial Research, told Bloomberg.
“Softbank is making the maximum use of the capital markets. Son has name value, so it won’t be difficult for them to raise money through a SPAC” - Kazumi Tanaka, IPO analyst at DZH Financial Research
On 13 September, Nvidia [NVDA] announced that it would be acquiring the British chip designer Arm from SoftBank for $40bn. The deal is to include $12bn in cash and $21.5bn in Nvidia shares. At the close of trading on 14 September, Softbank’s share price was up 8.9% from 11 September’s closing price. The move is considered a win for SoftBank as it has struggled to accelerate Arm’s computing-power growth since buying the chip designer for £24.3bn in 2016.
That same day, rumours that SoftBank was considering taking itself private renewed. Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, wrote in a note to clients seen by CNN that this action, combined with the proposed Arm acquisition, would likely boost SoftBank’s share price going forwards.
The consensus among analysts rating SoftBank’s share price is positive, according to MarketScreener data. Of 13 analysts, 10 rate the stock a Buy, two an Outperform and one a Hold. The consensus 12-month price target of JPY8,059.62 represents a 17.3% increase on SoftBank’s share price as of 5 November’s close.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.