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SoftBank swings to USD 6 billion quarterly profit

Written by Nikkei Asia Published on 

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Vision Fund chief Rajeev Misra and COO Marcelo Claure removed from board.

SoftBank Group founder and Chairman Masayoshi Son said tens of billions of dollars worth of fluctuations in its investment portfolio were “within the margin of error” after an improved performance at its Vision Fund was partly offset by derivatives losses.

“Softbank’s NAV (net asset value) can go up and down by JPY 3 trillion and JPY 5 trillion every three months,” Son said at an earnings presentation on Monday. “This is Softbank’s new normal. JPY 2-3 trillion is within the margin of the error.”

The Japanese group on Monday reported a net profit of JPY 627 billion (USD 6 billion) for the July-September quarter, after rising valuations for its tech portfolio.

But its recent strategy of investing in publicly listed tech companies suffered a setback after the asset management subsidiaries set up to hold those stocks posted a loss of USD 2 billion in the second quarter, mainly due to derivative losses.

SoftBank recently established the asset management arm, separately from its Vision Fund vehicle, to manage excess cash.

Son brushed off concerns over its complex derivatives trades.”Derivatives are about 1% of JPY 31 trillion (investment portfolio),” Son said. “Many people say that we play with fire. But even if it becomes zero, the [total] value will only decrease by 1%.”

The group’s quarterly result marks a recovery from a JPY 700 billion loss in the same period last year, when SoftBank suffered from a sharp decline in the valuation of US shared office provider WeWork.

The quarterly profit was driven by the near USD 100 billion Vision Fund and the smaller vehicle known as Vision Fund 2. The two funds reported JPY 1 trillion in investment gains, mainly thanks to higher valuations of the first fund’s portfolio companies, as well as the surge the stock price in one of the Vision Fund 2’s listed investments, Ke Holdings.

SoftBank said it has committed a total of USD 10 billion in Vision Fund 2.

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SoftBank recently began investing billions of dollars in large, publicly listed tech companies via a separate subsidiary — revealing ownership of stakes in groups including Amazon, Google parent Alphabet, and Netflix.

Its quarterly report listed USD 16.8 billion of holdings as of September 30, including USD 6.3 billion of Amazon stock and a USD 2.2 billion stake in Facebook.

The profits for the quarter were also partly offset by derivatives losses tied to its stake in China’s Alibaba Group Holding. SoftBank signed “prepaid forward contracts” in which it received cash from investors upfront in exchange for handing over shares in Alibaba in a few years’ time. As part of the arrangement, SoftBank uses derivatives to hedge the risk of fluctuations in Alibaba’s stock price.

SoftBank said four of its directors, including Vision Fund CEO Rajeev Misra and Chief Operating Officer Marcelo Claure, resigned from its board. Misra and Claure were reassigned as corporate officers. SoftBank said the aim was to strengthen governance by increasing the portion of external directors.

“There are too many internal board members,” Son said. “Their role should be to concentrate on execution side, while [the board] manages and supervises.”

Softbank has raised about USD 50 billion since April by cashing on some of its assets to ease investor concerns about its balance sheet.

Son declined to comment on whether he wants to take SoftBank private but said he was “thinking every day” about the pros and cons of being a listed company.

This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.

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