Written by Anton Bridge
TOKYO (Reuters) – Japanese technology investor SoftBank Group slipped back into the red in its earnings report on Monday, even though technology stocks, including its core asset Arm Holdings, performed well throughout the quarter. It is expected that this will happen.
Analysts and investors are also eagerly awaiting clues about new growth investments, as SoftBank has plenty of liquidity and can monetize its vast Arm stake.
Shares in U.K.-based Arm, which is 90% owned by SoftBank, nearly doubled in February as strong financial results sparked investor excitement over the expected gains from Arm's generative artificial intelligence (AI) implementation. However, Arm's stock price did not rise. Since SoftBank is a wholly owned subsidiary, it will contribute to the company's profits.
SoftBank's other listed assets had mixed results in the quarter, with shares of Coupang and DoorDash rising, while Didi Global and Grab Holdings fell. The initial public offering (IPO) market remains depressed, and analysts are uncertain about the prospects for monetization of SoftBank's portfolio of privately held tech startups.
SoftBank is expected to post a net loss of 72 billion yen ($462.7 million) in the January-March period, compared with 985 billion yen in the previous three months, according to an average of two analysts compiled by LSEG. It was a net profit.
SoftBank management said it was ready to make new growth investments, but stressed it would take a cautious approach.
New investment in the quarter was minimal, but analysts say a large and dominant acquisition, along the lines of the $32 billion acquisition of Arm in 2016, could be on the horizon. I see it as having sex.
According to an estimate by Shogo Higashino, a credit analyst at Nomura Securities, SoftBank could earn up to $30 billion by negotiating credit and financing for Arm shares, combining its liquidity on hand as of the end of 2023 and the proceeds from the bonds issued in March. There is a possibility of raising funds.
However, while Arm stock may enable investments of this size, Arm stock's dominance within SoftBank's portfolio has been compromised by shifts in market sentiment that have hurt SoftBank's value and ability to raise capital. becomes a risk in some cases.
Arm currently trades at a premium valuation far above competitors such as Nvidia, which has pushed it to account for nearly half of SoftBank's stock value.
Some analysts warn that this is unsustainable. Moningstar analyst Javier Colleonero estimates Arm's fair value at $57 per share, although recent trading range has been around $100 per share.
Investors were disappointed with Arm's annual revenue forecast in its quarterly results on Wednesday, sending the company's stock price down 8.5% the next day, highlighting the risk of a major rating change.
(1 dollar = 155.6100 yen)
(Reporting by Anton Bridge; Editing by Stephen Coates)
