SoftBank Stock IsSliding on a Weak Second Quarter and a Drop in Arm Shares

For its fiscal second quarter, SoftBank posted sales of ¥1.67 trillion, or $11.1 billion, up 3.4% from the year-ago quarter. But the company lost ¥931 billion in the quarter, or $6.2 billion, the company’s fourth consecutive quarterly loss, while the Street had been looking for a modest profit. The loss in the latest period includes combined losses in the Vision Funds of ¥570 billion, or $3.8 billion.

As for WeWork, SoftBank noted that total cash outflow now stands at $14.4 billion, which undoubtedly makes it one of the worst venture investments ever. That includes $1.6 billion in losses for the year to date. SoftBank still holds a majority position in WeWork’s equity.

For the first half of its fiscal year through September, SoftBank had sales of ¥3.3 trillion, or $21.86 billion, up 1.4% from a year earlier. The company lost ¥1.4 trillion in the period, or about $9.3 billion.

First-half results reflect a loss on investments of ¥963 billion, or $6.4 billion, including losses of ¥583 billion, or $3.9 billion, on the company’s Vision Funds investment portfolio, and another ¥414 billion loss, or $2.7 billion, on stakes in various other companies, including
Alibaba Group Holding
(BABA), T-Mobile US (TMUS),
Deutsche Telekom
(DTE), and
SoftBankCorp.
, the similarly named Japanese mobile provider.

Net asset value in the September quarter increased 6% to ¥16.4 trillion, or $108.7 billion. The company has ¥5.1 trillion in cash—$33.9 billion—down from ¥5.8 trillion one quarter earlier.

In September, SoftBank completed an IPO for Arm at $51 a share, generating $5.1 billion in proceeds, and SoftBank continues to own a 90% stake in the business, and consolidates Arm’s results. As a consequence, fluctuations in Arm’s shares aren’t reflected in SoftBank’s financial results, while 10% of Arm’s results are attributable to “non-controlling interests.” 

On Wednesday, Arm announced its first earnings report since returning to the public market, and the news was not especially well received—the stock is down 7.7% on Thursday to $50.22, just below the company’s recent IPO price. SoftBank’s stake in Arm is worth about $46 billion, equivalent to about 78% of SoftBank’s recent market cap of $58.4 billion. SoftBank said in reporting results that Arm now accounts for about a quarter of its total net asset value. Alibaba, which had once been the single largest holding in SoftBank’s portfolio, has been almost entirely sold off at this point.

SoftBank Chief Financial Officer Yoshimitsu Goto said in a short video commenting on the results that SoftBank intends to be an Arm investor for the long term—and that SoftBank remains bullish on Arm’s positioning in the market for artificial-intelligence technology. “We believe AI in all its forms is the principal growth driver in the current market cycle and beyond,” Goto said. “And we now have an enhanced focus on strategic investment opportunities.”

Morgan Stanley analyst Tetsuro Tsusaka points out in a research note that there had been expectations on the Street that company might announced a new stock-repurchase program this quarter, but no buyback was announced. “The decision to forgo a share buyback could depress the share price in the near term,” he writes.

In U.S. trading, SoftBank ADRs are down 5.4% to $19.59.

Write to Eric J. Savitz at [email protected]