SoftBank Group Corp.’s earnings are starting to reflect its transition into a company that invests and makes deals.
Operating profit was 479.3 billion yen ($4.3 billion), topping analysts’ projections, in the fiscal quarter ended June, as U.S. unit Sprint Corp. returned to profit for the first time in three years. Sales came in at 2.19 trillion yen, matching predictions, the Tokyo-based company said in a statement Monday.
SoftBank’s founder Masayoshi Son has long relied on earnings from Japanese wireless and telecom operations, using the money to make acquisitions and investments. The billionaire is in the process creating the $100 billion SoftBank Vision Fund, which was included in the results for the first time, to speed up investments in technology startups abroad. And the dealmaking is set to continue, with Sprint said to be back in merger talks with T-Mobile US Inc.
“The issue is whether SoftBank is a conglomerate, or else an investment vehicle,” Pelham Smithers, whose London-based firm offers equity research on Asian technology companies, wrote in a note to clients. “This is likely to be the question which focuses the minds of both senior management and investors over the next few years.”
Underscoring the notion that SoftBank is becoming more of an investor, the Tokyo-based company reported losses on derivatives of 257 billion yen, which pushed net income to 5.5 billion yen, well below estimates. The loss was related to a financial arrangement a year ago to sell shares in Alibaba Group Holding Ltd. through a trust in order to raise funds. Since then, Alibaba’s stock has climbed more than 80 percent, forcing SoftBank to recognize the difference.
SoftBank’s shares have climbed 16 percent this year and closed at 9,023 yen on Monday. The Japanese wireless operator has a market value of about 9.9 trillion yen, while its public shareholdings are worth 17.1 trillion yen. Son has for years maintained that his company is undervalued, urging investors to see SoftBank as a “goose with more golden eggs in its belly.”
Even as Sprint struggles to return to profit and stem subscriber losses, Son has set his sights on a possible merger with Charter Communications Inc., the second-largest cable provider in the U.S. Son has secured about $65 billion in financing for a possible offer for Charter, according to people familiar with the plan. At the same time, Sprint is said to have resumed preliminary merger discussions with T-Mobile US Inc. people with knowledge of the matter said. Last week, Sprint Chief Executive Officer Marcelo Claure said a decision on possible mergers is close at hand, lifting Sprint shares as much as 12 percent.
“Sprint’s earnings are improving as planned and the company could conceivably go it alone,” Son said at an earnings briefing in Tokyo on Monday. “But, in order for the company to grow further, we are considering multiple consolidation options. The negotiations are proceeding apace and we should be able to arrive at a decision soon.”
Son has also kept busy in other areas, investing in businesses ranging from ride sharing, co-working and robotics to agriculture, cancer detection and autonomous driving in the past six months. At the company’s annual event for customers and suppliers last month, Son painted a picture of the future where satellite networks cover every inch of the Earth and a trillion devices connected to the internet disgorge data into the cloud to be analyzed by artificial intelligence. SoftBank and its companies will be there at every step of the way, the billionaire said.
“This kind of group strategy is something that I have had in mind from the very beginning, and with the Vision Fund were now finally in the position to act,” Son said. “We are not just an investor, not in it just for the money. Our goal is nothing less than an information revolution.”
SoftBank Vision Fund has already raised more than $93 billion in total commitments from the Public Investment Fund of Saudi Arabia, Apple Inc. and other large institutional backers, while SoftBank itself is contributing $28 billion. The fund will invest in cutting edge technologies from virtual reality to autonomous driving and the Internet of Things.
The Vision Fund generated income of 105.2 billion yen during the latest quarter, although that was erased by unrealized investment losses, resulting in a net loss before interest, taxes, depreciation and amortization of 1.6 billion yen.
Even before the Vision Fund, Son has used cash from broadband and telecom operations in Japan to fund investments in businesses abroad. He was an early backer of Yahoo! Inc. and Alibaba. He spent $22 billion to acquire control of Sprint and last year bought chipmaker ARM Holdings Plc for $32 billion in the largest deal of his career.
“The focus now is on the Vision Fund and how the company plans to build out its technology portfolio,” Daisaku Masuno, an analyst at Nomura Holdings Inc., said prior to the earnings release.
— With assistance by Yuki Furukawa
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