Business / Corporate

SoftBank Group profit down 69%, but shares soar on T-Mobile-Sprint deal

AFP-JIJI, Bloomberg, Kyodo

Technology investor SoftBank Group Corp. said Wednesday its net profit plunged nearly 70 percent for the nine months to December as investments in share companies such as WeWork and Uber took a hit.

Its bottom-line profit lost 69.0 percent, or ¥476.6 billion ($4.3 billion), for the period as the firm suffered an operating loss of ¥13.0 billion.

The operating loss was largely “due to a decrease in the fair values of investments including Uber and WeWork and its three affiliates,” the company said.

The company did not publish its outlook for the year to March 2020.

The disappointing results follow a turbulent period for the firm. CEO Masayoshi Son has faced criticism over his commitment to startups some say are overvalued and lack clear profit models.

SoftBank has taken stakes in some of Silicon Valley’s hottest startups through its $100 billion Vision Fund.

The group last year announced its long-mooted Vision Fund 2, again targeting around $100 billion, but investors have been slower to commit this time around.

In the quarter to September, the group reported an operating loss of ¥704.4 billion, the worst in its history.

But it returned to the black for the three months to December, reporting ¥2.6 billion in operating profit, still down from ¥438.3 billion a year earlier. Net profit in the quarter stood at ¥55 billion, down 92 percent on year.

Shares in SoftBank have risen recently on news U.S. hedge fund Elliott Management has built a more-than-$2.5 billion stake in the group.

On Wednesday, stocks rose another 11.88 percent after a U.S. court approved the merger of mobile carriers T-Mobile and Sprint — more than two years after it was first announced.

“The tide has changed,” Son told a news conference Wednesday in Tokyo, referring to signs of improvements seen in SoftBank’s investment projects.

The Sprint sale helps Son in several ways. SoftBank will no longer face the risk of having to fund the wireless operator, a huge debt load will move off its balance sheet and Son will have more flexibility in raising capital for a share buyback or for the second Vision Fund.

“This is obviously great news for Sprint,” said Kirk Boodry, an analyst at Redex Holdings who writes for Smartkarma. “It is better news for SoftBank.”

The terms of the T-Mobile deal are likely to be revised because the original deal has expired, Boodry said, which means SoftBank may end up with a smaller stake in the combined company. But SoftBank won’t be on the hook for what Boodry estimates would be a potential $5 billion to $10 billion in capital investments. The two companies said they plan to close as soon as April 1.

In recent years, Son has overhauled his company to focus on startup investments and shift away from the more traditional telecom business. He set up the first Vision Fund in 2017 with the goal of becoming the biggest investor in technology. He even sold a stake in his domestic wireless operation to public shareholders so he could focus on deals. For several quarters, his performance seemed strong as startup valuations rose and SoftBank regularly booked gains.

But Uber, one of SoftBank’s biggest bets, stumbled as it went public last year. Then WeWork’s valuation crashed from $47 billion to less than $8 billion. Public investors suddenly turned their backs on the fast-growing, money-losing startups that SoftBank had favored.

Son is still determined to raise a second Vision Fund. His early backers are reconsidering their commitments. But SoftBank has weighed contributing $40 billion to $50 billion, people familiar with the matter have said.

With the Sprint sale heading for completion, Son would have more flexibility with his finances. The deal won’t bring in capital because SoftBank’s Sprint shares will be converted into stock in the combined entity. But he will be able to borrow against the equity, which is likely to be worth more given the early share reaction.

“It certainly changes the conversation,” said Chris Lane, an analyst with Sanford C. Bernstein. “This is the first piece of good news in quite a while.”