SoftBank hit as profit, and Arm deal, collapse By Reuters

By Sam Nussey

TOKYO (Reuters) – SoftBank Group Corp reported a 97% drop in quarterly profit and the collapse of a deal worth up to $ 80 billion to sell chip designer Arm on Tuesday, adding to pressure on the Japanese conglomerate to boost its sagging shares.

Masayoshi Son’s investment giant squeezed out a net profit of 29 billion yen ($ 251 million) in the October-December quarter, a sliver of the record 1.2 trillion yen profit it booked a year earlier when its tech portfolio rallied.

It said the sale of Arm to Nvidia (NASDAQ 🙂 had fallen through because of regulatory hurdles. That marks a major setback to SoftBank’s fund-raising plans just as valuations again come under pressure, from both growing investor caution and concerns about China’s regulatory crackdown on tech firms.

“We were in the middle of a blizzard and the storm has not ended, it has got stronger,” Son, SoftBank’s founder and chief executive, told a briefing following the release of the results.

Investors are growing cautious about tech firms promising future profits as central banks seem back stimulus. SoftBank has also been whiplashed by exposure to China, where regulators have taken action against tech firms. Shares of e-commerce giant Alibaba (NYSE :), in which SoftBank has a stake, dropped a fifth in the three months to the end of December.

The Vision Fund unit reported its investment gain tumbled to 111.5 billion yen during the quarter from a 1.4 trillion yen a year earlier.

“Even though some of the public companies have come down in value, there have been significant follow-on funding rounds where outside institutional investors have led those rounds,” Vision Fund’s Chief Financial Officer Navneet Govil told Reuters.

BELOW LISTING PRICE

Many SoftBank portfolio companies are trading below their listing price, with office-sharing firm WeWork, ride hailer Grab and used-car platform Auto1 all falling during the quarter.

Such assets can be sold down or used as collateral for loans as SoftBank invests through its Vision Fund unit, which runs the $ 100 billion Vision Fund and a smaller second fund and has become the priority for the group.

Vision Fund 2, which had $ 51 billion in committed capital at the end of 2021, had invested $ 43.1 billion in more than 200 startups. Industry observers have noted a disconnect between frothy private markets and skepticism in public markets, but Govil said that gap could be closing.

“We are seeing some healthy rebalancing … at some of the more extreme ends of the market,” he said. “We did turn down quite a few transactions because we thought valuations were rich.”

Portfolio companies, including sports e-commerce firm Fanatics, held funding rounds during the quarter. Vision Fund has distributed $ 44.2 billion to its limited partners across both funds.

The earnings come at a watershed moment for the conglomerate as senior executives exit the firm, including Chief Operating Officer Marcelo Claure, who led the restructuring of WeWork and launched the group’s Latin American-focused fund.

SoftBank launched a 1 trillion yen buyback in November. Group shares closed down 0.9% ahead of earnings and have lost about half since highs in March last year.

($ 1 = $ 115,4500)