Bloomberg News reports that Masayoshi Son’s Softbank Group Corp is not being able to win despite investors’ repeated warming up to the technology stocks. The shares belonging to the Japanese giant had become half since the past year when it had reached its peak, and a publicly traded investment selloff triggered it. While there was a bounce back recently, the holdings in the private firms, the valuations of which are opaque, are anticipated to pull down drags after a record annual loss in the last fiscal year was softened.
If the company had to mark down hundreds of unlisted investments, it would be a painful affair for Softbank. The company depends on the initial public offerings so that the companies can be brought to the market and then be able to borrow against these stakes to offer to support the other startups.
In 2021, the Japanese conglomerate earned the biggest profit quarterly in history. However, as the valuation of the SoftBank-backed ByteDance Ltd starts plunging, the cycle might be at risk. The shares of ByteDance, the Chinese parent of TikTok, have increased by more than 25% in the past year in the private markets.
Rapid Upheavals
Softbank has never disclosed how it values these companies. There are many factors that the Japanese giant considers for valuing and running its Vision Fund Investments, which also include the valuation of the companies that are comparable and the assessments of the cash flows in the future. It makes use of quoted prices for the listed assets.
Bloomberg news also reports that Son has always said that the company is equipped with enough cash to handle the economic rout and that Contentsquare and a few private investment firms are doing quite well. However, SoftBank plans to curb the Vision Fund Investment by 75% for the entire year. It raised as much as $22 billion in cash by selling prepaid forward contracts using Alibaba Group Holdings Ltd shares.
It is expected that a net loss of 413.9 billion yen, equivalent to $3.1 billion, will be posted by SoftBank for the three months that ended June 30th, when the results will be reported as per the average of the three analyst assessments.
Aside from the tech selloff, many portfolio firms of SoftBank are being hit by the industry crackdown in China and the escalating price of the components. This might cause SoftBank to invest in new markets and support younger companies in the company’s earlier funding rounds.
The recent rout is most likely to push the venture capital funds to curb the spending on the startups, triggering the startups to approach the Japanese giant for extra funds, as stated by BI analyst Marvin.
