Japanese tech giant reports surprise loss

SoftBank shocked markets with a surprise loss in the first quarter covering April-June, but the Japanese tech conglomerate posted a rare investment gain at its massive tech-focused Vision Fund.

Here’s how the company did:

• The SoftBank group reported a net loss attributable to owners of the parent of 477.6 billion yen ($3.3 billion). This came in well below a Refinitv analyst estimate anticipating a 75 billion yen profit, but was much softer than the steep 3.16 trillion yen loss that the company logged in the same period of last year.

• SoftBank’s Vision Fund, which is closely watched by investors as an indicator of health in the tech sector, booked an investment gain of 159.8 billion yen ($1.1 billion), its first gain in five consecutive quarters. It benefited from investments in shares of the company’s subsidiaries, including chip design giant Arm.

The results mark something of a turnaround for Japanese tech guru Masayoshi Son’s beleaguered Vision Fund, which has over the last year or so racked up billions of losses owing to tech bets that soured in a high interest rate environment.

SoftBank’s CFO Yoshimitsu Goto said during the earnings call that the company has been carefully returning to making investments after previously cutting back on such activity due to grim market conditions.

Goto noted that both public and private market securities have seen a recovery over the past few months, with the Nasdaq Composite and Thomas Reuters Venture Capital Index both up considerably since the start of the year.

“Based on this trend we also like to make a good balance between gas and brakes for resuming investment activities,” Goto said.

The company, which has been trimming down its stake in Alibaba as it tries to recoup losses from last year’s meltdown in technology shares, said it saw an unrealized valuation loss on Alibaba shares of 553.4 billion yen. However, this was offset by a derivative gain of 769.9 billion yen.

Last quarter, SoftBank recorded a $32 billion loss at its Vision Fund investment arm, which has backed some of the largest names in technology today from Uber to South Korean e-commerce titan Coupang.

The company at the time said that, despite having exited its remaining stake in Uber, it still logged losses from investments such as SenseTime, a Chinese artificial intelligence company, and GoTo, an Indonesian ride-hailing and e-commerce firm.

The tech conglomerate, which engages in venture capital investing through its Vision Fund, has had its fair share of ups and downs. It halted new investments and offloaded its holdings of ride-hailing giant Uber, and trimmed its stake in Alibaba.

Investors had been looking for clues on how SoftBank has benefited from the rise in technology stocks these past few months. Major technology names such as Alphabet and Amazon have seen their share prices climb since the start of the year, as investors bet on an end to a relentless rise in interest rates.

Also in focus was whether SoftBank stood to benefit from swelling demand for artificial intelligence following the rise of ChatGPT, a popular AI chatbot owned by Silicon Valley startup OpenAI. SoftBank has previously shied away from making new investments amid a grim market environment. But the company has made no secret of its desire to capitalize on the “AI revolution.”

In a shareholder meeting in June, CEO Masayoshi Son said that SoftBank plans to shift from “defense mode” to “offense mode.”

“In the past few years, we focused on being [on] ‘defense.’ Three years ago, we didn’t have a lot of cash on hand. But because we have been in defense mode, we have built our cash on hand to five trillion yen ($35.3 billion),” Son said. “We are ready to shift to offense mode. I am excited about that.”

On Thursday, SoftBank’s chief financial officer hailed the return of the company’s activity in the market, noting that SoftBank had executed about $1.8 billion worth of investments between April to June.

“Last year, the whole year was almost stopped in terms of investing. So when you look at the three-year trend, we’ve been carefully restarting our investment activities,” Goto said, stressing that the company is “carefully” resuming investment activities.

Meanwhile, market players were keenly watching for any commentary from SoftBank on the initial public offering of Arm, the chip design company it acquired in 2016 for $32 billion.

SoftBank was originally meant to sell Arm, whose chip architectures can be found in 99% of all smartphones, to Nvidia for $39 billion, but it called off the deal after facing intense backlash from regulators, who flagged concerns over competition and national security.

During last quarter’s earnings call, the firm’s Chief Financial Officer Yoshimitsu Goto said that SoftBank has a number of companies ready to go public, which are valued at a combined $37 billion. He did not name these companies.

The brainchild of founder Masayoshi Son, SoftBank’s Vision Fund comprises Vision Fund 1 and Vision Fund 2 and invests in high growth stocks. Both portfolios have faced headwinds from rising interest rates globally causing investors to sell out of riskier equities such as tech.

Last year, faced with mounting losses, Son’s key ally and top SoftBank executive Rajeev Misra stepped back from some of his roles at the company. Misra was instrumental in the early days of the Vision Fund, which was launched in 2017.