SoftBank Begins Making Investments Again ‘Timidly With Fear’

SoftBank Group Corp.’s Vision Fund eked out its first profit in more than a year and said it’s cautiously resuming investments to capitalize on the opportunities in artificial intelligence and other emerging technologies.

(Bloomberg) — SoftBank Group Corp.’s Vision Fund eked out its first profit in more than a year and said it’s cautiously resuming investments to capitalize on the opportunities in artificial intelligence and other emerging technologies.

The Vision Fund invested $1.6 billion in the June quarter after coming to a virtual halt as investors soured on money-losing startups. But that’s still just a fraction of the fund’s early spending pace.

“We are investing timidly, with fear in our hearts,” SoftBank Chief Financial Officer Yoshimitsu Goto said during an earnings call. “But for an investor to play it safe is the same as not doing work.”

Under founder Masayoshi Son, SoftBank invested more than $140 billion dollars in unprofitable startups from 2017, inflating valuations worldwide before they were punctured by the Covid pandemic, China’s tech crackdown and the US Federal Reserve’s rate hikes. Last year, the Vision Fund lost a record $30 billion. 

But a year of restraint has helped SoftBank regain its financial footing. The company has accumulated a cash pile of almost ¥6 trillion ($42 billion), which Goto said he believes is the highest ever for the company. SoftBank’s loan-to-value ratio, or the ratio of its net debt against the equity value of its holdings, fell to 8% at the end of June, its lowest ever, he said. 

SoftBank’s Vision Fund unit swung to a profit of ¥61 billion in the June quarter from a ¥2.3 trillion loss a year ago. That helped SoftBank report a smaller group-wide net loss, although the Japanese company remained underwater with earnings dragged down by paper losses on its stakes in Alibaba Group Holding Ltd., Deutsche Telekom AG and T-Mobile US Inc.  

“Shifting to offense mode,” read one slide in his presentation. “But from the CFO’s perspective, I’d like to see us do that carefully,” said Goto.

How aggressively Son will be able to chase new deals hinges on the planned initial public offering of SoftBank’s Arm Ltd. The chip designer is seeking to raise as much as $10 billion in a market debut as soon as September at a valuation of between $60 billion and $70 billion. If successful, that would make Arm the largest tech debut on record after Alibaba Group Holding Ltd. and Meta Platforms Inc.

But Arm stumbled financially in the latest quarter. It logged a quarterly loss of ¥9.5 billion on a 11% decline in sales in dollar terms because of a slowdown in smartphone sales and buildup of inventory in the electronics market. Goto declined to go into detail on the planned offering.

“Arm’s IPO plan is going very smoothly,” he said. Son handed over the earnings presentations to Goto in November because he said he wanted to focus on Arm.

The Nasdaq 100 index, a proxy for tech stock performance, rallied 15% during the June quarter, capping its best ever first-half of a year. Hype over artificial intelligence and easing concern over higher interest rates have bolstered SoftBank’s investments in companies including Grab Holdings Ltd., Coupang Inc. and Roivant Sciences Ltd.

Tomoaki Kawasaki, a senior analyst at Iwai Cosmo Securities Co., said the rally in tech stocks should benefit SoftBank both in the Arm IPO and in the value of its portfolio companies.

“Once Arm goes public, investors would be able to bet on two profit streams: one from Arm and other AI- and chip-related investments; and another from the expansion of Vision Fund investments,” he said. 

SoftBank has cut deeply into the staffing at the Vision Fund unit, in part because it has backed off new investments. The division reduced headcount by about 30% in the last fiscal year and began another round of layoffs this year, Bloomberg reported in June.

Navneet Govil, executive committee member for the Vision Funds, confirmed there was another round of cuts in the June quarter, but wouldn’t elaborate on how many jobs had been eliminated. 

“We now believe we have right-sized the organization for the investment opportunities that we see ahead,” Govil said on the earnings call.

SoftBank has spent a large percentage of the $166 billion it raised across investment funds. But it still has more cash to invest than most venture firms. 

“We have over $8 billion in available capital in Vision Fund 2 to invest,” Govil said. “At the same time, the bar for investment is very high.”

–With assistance from Vlad Savov, Edwin Chan and Ritsuko Ando.

(Adds executive comments from earnings call)

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