Anton Bridge
TOKYO (Reuters) – Japanese technology investor SoftBank (TYO:) Group is expected to be in the red again when it reports earnings on Monday, despite tech stocks including Hand Holdings (NASDAQ:), its main asset, posted strong results for the quarter.
Analysts and investors are also eagerly awaiting word on new growth investments as SoftBank has ample liquidity and can monetize its huge holdings in Arm.
The share price of British company Arm, in which SoftBank owns a 90% stake, roughly doubled in February after strong earnings results sparked investor excitement over Arm’s expected gains from generative artificial intelligence (AI), but Arm’s share price remained unchanged. generates revenue for SoftBank because it is a wholly owned subsidiary.
SoftBank’s other listed holdings had a mixed performance in the quarter, with shares of Coupang and DoorDash (NASDAQ:) rising while shares of DiDi Global and Grab Holdings fell. The initial public offering (IPO) market remained soft, leaving analysts unsure about the monetization prospects of SoftBank’s portfolio of unlisted technology startups.
SoftBank plans to post a net loss of 72 billion yen ($462.70 million) for the January-March period, according to the average estimates of two analysts surveyed by LSEG, compared with a net profit of 985 billion yen in the previous three months.
SoftBank executives said they were willing to make new growth investments but stressed they would take a cautious approach.
New investment was minimal in the October-December quarter, but analysts say a large, controlling acquisition could be in the offing – similar to Arm’s $32 billion purchase in 2016.
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Nomura Securities credit analyst Shogo Tono estimates SoftBank could fund up to $30 billion by pooling its end-2023 liquidity, proceeds from bonds issued in March and negotiating a margin loan on its Arm stake.
But while Arm’s stake could make investments of this scale possible, its dominance in SoftBank’s portfolio poses a risk if market sentiment changes, hitting SoftBank’s value and fundraising capabilities.
Arm’s stock currently trades at a premium valuation far above rivals such as Nvidia (NASDAQ:), making it nearly half the value of SoftBank’s shares.
Some analysts warn it is unsustainable. Moningstar analyst Javier Correonero estimates Arm’s fair value at $57 per share, down from a recent trading range of around $100 per share.
Investors were disappointed by Arm’s full-year quarterly earnings forecast on Wednesday, sending the company’s shares down 8.5% the next day and highlighting the risk of a major rerating.
($1 = 155.6100 yen)