SoftBank Swings to Profit and Refocuses Its Strategy Around Arm
(Bloomberg) -- SoftBank Group Corp. swung to its first profit after four quarters of losses and sketched out how it will reposition its strategy around artificial intelligence and its prized asset, Arm Holdings Plc.
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The Tokyo-based technology investor is exploring ways that it can use Arm’s chip designs “to the fullest extent” as its founder Masayoshi Son chases AI-related investments, Chief Financial Officer Yoshimitsu Goto said.
“We’re realizing anew how significant Arm’s presence can be in AI,” Goto said at an earnings briefing Thursday. “Son is busy working on many different ways Arm could be used.”
SoftBank reported its first profit since September 2022, helped also by a windfall from T-Mobile US Inc. shares. Net income for the December quarter came to ¥950 billion ($6.4 billion), reversing a ¥783 billion loss a year ago.
The Vision Fund segment posted a profit of ¥423 billion, thanks to stock gains at companies such as DoorDash Inc., Auto Store Holdings Inc., and Symbotic Inc. as well as a valuation rise in TikTok owner ByteDance Ltd. On a cumulative basis, however, the Vision Fund was still in the red, down nearly $3 billion.
Over the last year, SoftBank has been whittling down its exposure in China, selling down its stake in Alibaba Group Holding Ltd. While the Chinese e-commerce giant used to account for 50% of SoftBank’s assets, it was only 0.02% of the company’s holdings in December, he said.
“Alibaba is now effectively zero, Arm accounts for 32%,” he said. “Arm is central to SoftBank’s AI strategy.”
The solid quarter may herald more relief to come, according to Kirk Boodry, an analyst at Astris Advisory. “We have not been overly bullish on the current portfolio,” but key portfolio companies like ByteDance or American online sportswear store Fanatics might list in 2024, he said.
SoftBank booked a gain from an arrangement that gave it more than 48 million T-Mobile shares worth almost $8 billion in December. The deal was part of an agreement struck when T-Mobile acquired rival and former SoftBank unit Sprint Corp. in 2020, designed to give SoftBank more T-Mobile shares if the stock rose above a certain level during a given period.
A 40% rally in Arm’s shares in the December quarter further bolstered SoftBank’s net asset value to ¥19.2 trillion, one of Son’s metrics for the investment firm’s health. As the owner of a roughly 90% stake in the UK firm, SoftBank will likely be able to use Arm to help finance loans for new investments, in the same way a stake in Alibaba helped SoftBank secure financing to acquire Arm in the first place.
Arm earlier gave a bullish earnings forecast as a push beyond smartphones to more lucrative arenas such as servers and data centers bore fruit. That sent Arm shares soaring in after-hours trading, bringing the company’s valuation closer to $100 billion. Shares of SoftBank surged 11% prior to the earnings results, its highest close since July 2021.
Skepticism remains, however, about the Vision Fund’s hundreds of privately held startups. The second Vision Fund, funded entirely by SoftBank, is mired in losses after a post-pandemic slump hurt tech valuations worldwide. Its gross performance since inception is a $19 billion loss, while Vision Fund I has had a $16.7 billion gain, SoftBank said this quarter.
The first Vision Fund has had its own setbacks, including from WeWork Inc., the startup once valued as much as $47 billion that filed for bankruptcy last year.
New investment activity by the second Vision Fund dwindled to $90 million, a shadow of the billions that SoftBank used to wield in the startup space. The first Vision Fund hasn’t made any new investments in the past nine months.
SoftBank is still hunting investments, but those efforts just happened to not bear fruit in the December quarter, he said. “Magma might be accumulating.”
--With assistance from Vlad Savov and Ville Heiskanen.
(Updates with details from earnings briefing)
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