Warren Buffett is famously known as the world's greatest investor -- but he's also famously averse to technology stocks. He tends to stick to things that he knows like banks, insurance companies and consumer goods.
What if there was an investor with Buffett's investing acumen... who also had a similarly advanced understanding of technology?
Well, luckily for investors, there's one such investor who has assembled a company investing in technology with stakes in many different companies, just like Buffett has done with Berkshire Hathaway (NYSE: BRK-B).
Masayoshi Son has transformed SoftBank Corp. (SFTBY) from a software wholesaler in Japan to an investment vehicle like Berkshire Hathaway with stakes in more 1,300 technology companies. Last year, SoftBank purchased control of Sprint (NYSE: S) for $22 billion.
SoftBank operates five key units, including mobile communications, fixed-line telecommunications, Internet and Sprint. (The fifth unit encompasses SoftBank's other businesses, including a Japanese pro baseball team in Japan and investments in many other companies. This setup is similar to Berkshire Hathaway, except most of SoftBank's companies are focused on technology.
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The mobile segment consists of SoftBank Mobile, which was the first mobile provider to introduce Apple's (Nasdaq: AAPL) iPhone in Japan. As of last year, the company had over 33 million subscribers. SoftBank also produces and distributes online games for smartphones and other devices for its subscriber base.
Since 2010, SoftBank has been offering its fixed-line unit's business customers cloud computing services with its White Cloud service. SoftBank has partnered with Google (Nasdaq: GOOG) and VMware (NYSE: VMW) to expand its range of services and increase its share of Japan's cloud computing market.
The Internet segment is primarily made up of SoftBank's stake in Yahoo Japan (YAHOY). Over the past two years, Masayoshi Son has refocused Yahoo Japan on smartphones and increasing its mobile advertising, in part by using the resources of other SoftBank units to create synergies.
Son is not content with Sprint being the third-largest mobile carrier in the U.S. He wants to mount a greater challenge to AT&T (NYSE: T) and Verizon (NYSE: VZ) by merging Sprint with T-Mobile US (NYSE: TMUS), a deal that would combine the #3 and #4 carriers in the U.S.
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Son has been working to line up financing and supposedly has commitments from six banks to finance the purchase. If a deal were to happen, Son has said that he would launch a massive price war and try to gain as many customers as possible. This might help get a deal approved from the U.S. Department of Justice, which three years ago blocked AT&T's bid to buy T-Mobile.
What has really cemented Son's prowess as an investor and a dealmaker is his investment in Alibaba, which is now China's biggest online marketplace and filed for its IPO this month. In 2000, SoftBank provided $20 million in seed capital to Alibaba. SoftBank will have a 34.4% stake in Alibaba after its IPO, which could be worth as much as $58 billion. Even Buffett has never had a windfall that big.
However, SoftBank will not be selling any shares in the IPO. Son looks to be a long-term investor in Alibaba... which is very similar to Buffett's style of investing.
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Risks to Consider: Masayoshi Son's style of dealmaking has left SoftBank with an enormous debt load of just over $90 billion, prompting Moody's and S&P to cut SoftBank's credit rating to junk status last year. However, this debt load is not slowing Son down: He's looking for more than $20 billion to purchase T-Mobile. As an upside risk, if SoftBank decided to sell its Alibaba stake, it could pay down a good portion of that debt.
Action to Take --> Considering the value of SoftBank's assets and earnings growth, a price-to-earnings (P/E) of 25 is easily justified. Applying a P/E of 25 to next year's expected earnings yields a price target of $50, representing upside of almost 40%.