(Bloomberg) – SoftBank Group Corp.’s Vision Fund unit posted a record $7.6 billion profit in the last quarter, bolstered by a recovery in some startup valuations and a Chinese real estate startup’s blockbuster public offering.
The unit reported 784.4 billion yen of income in the three months ended Sept. 30, rebounding from a 612 billion yen loss a year earlier, SoftBank said in a statement Monday. The Tokyo-based company, which has stopped putting out operating profit figures, had net income of 627.5 billion yen in the quarter.
Masayoshi Son’s business is recovering from a record loss last fiscal year as a global rally in technology shares lifted the value of stakes in public firms like Uber Technologies Inc. and improved the prospects for startups in its portfolio. But the losses derailed Son’s plans to raise outside money for a follow-up to the original Vision Fund. The second Vision Fund is more modest in scale because it is financed entirely by SoftBank. It has also adopted a more cautious approach, cutting smaller checks at a slower pace.
“Vision Fund 2 is showing more discipline,” Atul Goyal, senior analyst at Jefferies, said ahead of the earnings announcement. “But at the end of the day, we need to see some exits and those are probably still years down the road.”
One success in the second fund’s portfolio is KE Holdings Inc., a Chinese online property platform that went public in August. Shares in the company, also known as Beike, have surged since then, boosting the value of SoftBank’s original $1.35 billion to more than $6.38 billion as of Sept. 30, according to Bloomberg calculations. SoftBank said its VF2 had an unrealized gain of $5.1 billion on the investment.
375% Return on One Startup to Help SoftBank Get Past WeWork
The Vision Fund unit set a new profit record in the quarter, beating the previous high in the third quarter of fiscal 2018, before Uber’s disappointing IPO and the implosion of WeWork’s offering the following year.
After shares plunged in March with the coronavirus outbreak, SoftBank unveiled plans to sell off 4.5 trillion yen of assets to reduce debt and fund buybacks. The selloff included part of its interest in Alibaba Group Holding Ltd., T-Mobile US Inc. and SoftBank Corp., the Japan telecommunications unit. SoftBank also announced a deal to sell its chip designer Arm Ltd. to Nvidia Corp. for $40 billion.
“For long-term SoftBank investors, quarterly earnings are of little import these days,” Jefferies’ Goyal said. “The only thing that’s material is Alibaba’s stock price and the buyback.”
SoftBank has announced a record 2.5 trillion yen of re-purchases, helping its stock hit a two-decade high last month. Son also plans to get into the blank-check frenzy and has contemplated a management buyout of SoftBank. He has used some of the proceeds to invest in U.S. tech stocks in what the company described as a liquidity-management strategy.
SoftBank acquired 1.7 trillion yen of “highly liquid listed stocks” in the quarter. It held a $6.3 billion investment in Amazon.com Inc., $2.2 billion in Facebook Inc. and $1.8 billion in Zoom Video Communications Inc. at the end of the period. The operation is managed by its new asset management subsidiary SB Northstar, where Son personally holds a 33% stake.
In September, it was revealed that the investments were accompanied by derivatives that amplified his exposure, causing SoftBank’s market capitalization to slide by as much as $17 billion. SoftBank said it had a total of $2.7 billion of derivatives as of Sept. 30. That includes $4.69 billion of long call options on listed stocks for a notional principal of $72 billion.
Despite shareholder skepticism, SoftBank has charged ahead with its new public stock trading arm. The strategy was built around expectations of a volatile third-quarter earnings season, people familiar with the matter said last month. SoftBank has been buying out-of-the-money call options, which deliver returns when share prices rise, and selling calls at even higher prices, one of the people said. Call spreads, as they’re known, cap gains but reduce the initial cost.
“It’s becoming difficult to tell what SoftBank is all about anymore,” Jefferies’ Goyal said. “While investors are always keen to hear about Son’s vision for the company, it seems to be changing every quarter. What people really want is more consistency.”