SoftBank Vision Fund results put startup valuations in focus

This will not be enough to offset the heavy losses of three quarters. The Vision Fund could still post a bigger annual loss than last year’s record ¥2.6 trillion loss, with Astris Advisory’s Kirk Boudry estimating a total loss of roughly ¥4 trillion ($30 billion) in the year ended March. have put.

Estimating the valuation of Vision Fund investments is challenging due to the high proportion of unlisted companies in the portfolio, making SoftBank’s earnings reports the best barometer. Investors now question whether the bleeding is over.

Risk appetite for nonprofit startups remains weak, crippling SoftBank’s ability to book investment profits. Founder Masayoshi Son is set to skip Thursday’s earnings call, leaving Chief Financial Officer Yoshimitsu Goto in charge of talking up a planned initial public offering of chip design unit Arm Ltd. and assuaging any fears about its finances. Has been given.

Here are the key points to watch:

Is the Worst Over for Tech Startups?

Over the past year, SoftBank has reduced investments in high-profile and unlisted startups ranging from India’s Oyo Hotels to Sweden’s Klarna Bank AB. But some investors keep asking whether they’ve gone too far.

SoftBank discloses writedowns or gains on its investments in listed companies, including Didi Global Inc and Grab Holdings Inc, but has limited visibility on SoftBank’s privately held holdings, which number in the hundreds. Many of the startups it has invested in are in the red.

Any signs of improvement in the Vision Fund’s performance will be looked at, such as their internal rates of return by the end of March. The first Vision Fund was above water in terms of its cumulative return minus investments since inception, while the second Vision Fund was in the red, down about $17 billion as of the end of December.

How strong is SoftBank’s balance sheet?

SoftBank’s preferred metric on its financial health is its loan-to-value ratio. This figure shows a company’s debt load compared to the current value of all its holdings.

The heavily indebted company is sensitive to any interest rate hikes, and the company has pledged to keep its LTV below 25% and have enough cash to cover at least two years of bond redemptions. The figure stood at 18.2% in the December quarter.

Analysts often use the term net asset value per share. Subtracting net debt from the value of the company’s holdings and dividing by the number of shares outstanding, the figure was ¥9,472 per share at the end of December. SoftBank is trading at a little over half that. Morgan Stanley MUFG sees a 40% to 50% holding company discount as reasonable.

How big will be Arm’s IPO?

Chip designer unit Arm’s earnings will help determine the success of its highly anticipated IPO later this year — and by extension, SoftBank’s ability to get on the offensive again.

Bankers have valued between $30 billion and $70 billion for the listing, Bloomberg previously reported, a wide range that reflects the challenges of valuing the firm against a backdrop of volatile semiconductor equity prices.

Arm reported 30% year-over-year revenue growth in the December quarter and is likely to report another profit. But the outlook on some chips remains uncertain, with executives warning of a continued slowdown in the overall smartphone and PC markets.

How much stake does SoftBank have left in Alibaba?

SoftBank’s Alibaba stake has helped reverse the company’s previous transformation from a software publisher to a telecoms firm into the world’s largest tech investor. That resource may be drying up, underscoring SoftBank’s growing reliance on the arm to power its future bets.

On paper, SoftBank still owned close to 14% of Chinese e-commerce leader Alibaba Group Holding Ltd. at the end of December. But in reality, this share is estimated to be much smaller.

SoftBank offloaded an additional $7.3 billion in Alibaba shares this year through prepaid forward contracts, according to a Bloomberg analysis of regulatory filings. Boudry of Estris Advisory estimates that this will reduce SoftBank’s unencumbered stake in Alibaba to about 3.8% by the end of March.