Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn


Learning from the world's largest tech investor: Charts of the week

Lewis Jackson  |  18 May 2022Text size  Decrease  Increase  |  
Email to Friend

Catastrophic full-year results at the world’s largest technology sector investor are a window for Australian investors into the global selloff and how big players are responding.

Famous for its early investment in then-fledgling Chinese e-commerce venture Alibaba, the sprawling Japanese telecommunications giant SoftBank is also known for the US$100 billion-plus it wields through two-venture capital “Vision Funds”. The first launched in 2017 with money from Saudi Arabia and Apple and made high-profile investments in the likes of Uber, WeWork and Tiktok owner ByteDance.

However, the abrupt tide change in markets has left Softbank beached. After booking a record-breaking profits last financial year, Softbank’s vision funds are nursing a US$27 billion loss, roughly three times Fortescue Metals’ highest-ever profit.

“When it rains, you open an umbrella,” said offbeat founder Masayoshi Son as he fronted investors at a presentation last Thursday. He vowed a more conservative approach, just one year after promising investors many “golden eggs ”.

Big investors are nursing serious losses

Performance at Softbank’s Vision funds is a snapshot of technology investing since the pandemic.

Softbank reported a US$46 billion profit in fiscal 2021, the largest on record for a Japanese firm, buoyed by blockbuster performance in the vision fund’s stable of “fintech”, “edtech”, “healthtech” and “frontier” companies.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

A year later, Softbank notched another record: the second-worst annual loss for a Japanese company. The vision fund unit alone lost US$27 billion (¥3.5 trillion) for the full year ended 31 March as the rug was pulled from under its investments.

Softbank’s portfolios are littered with firms whose blockbuster performance during the heady days following the pandemic has steadily deflated. Chinese ride-hailing service Didi and Korean e-commerce player Coupang are more than 60% down following highly anticipated listings in 2021.

Bold bets on technology are coming apart for other major players too. Cathie Wood’s ARK Innovation ETF is down 55% this year while storied tech-focussed hedge fund Tiger Global lost US$17 billion.

No moat Softbank is trading at a 29% discount to Morningstar’s fair value of ¥7,200.

Big investors are getting defensive

When Son fronted shareholders last week, the first slide of his presentation featured a single word: “Defensive”.

The man who once likened himself to Jesus Christ announced Softbank will slash new investments from the Vision funds to lows not seen since the depths of the pandemic. He expects they are likely to fall further.

“I would say compared to last year, the amount of new investment will be half or could be as small as a quarter,” he said.

In a sign of leaner times ahead for growth investors, Son talked up Softbank’s cash reserves. The conglomerate will keep double the cash on hand required to make its next two years of bond payments.

Softbank is pulling back in tandem as private equity and venture capital activity cools. Pitchbook data shows the value of private equity exits, where privately held businesses are sold via public offering, mergers or buyouts, slumped 57.5% in the year to March compared to the prior quarter.

Markets are discounting technology

Softbank’s sprawling portfolio of assets are trading at meaningful discount to the company’s share price in a sign that investors are unsure how to value its stable of 300 plus bets.

The price to book value, which measures a company’s assets against its market capitalisation, dropped below one last year for the first time since Vision Fund 1 launched in 2017. It fell further this year. In other words, Softbank trades for less than the total value of its assets.

Nervous investors may be put off by the firm’s stake in Alibaba, roughly a quarter of Softbank’s net asset value. Shares in the Chinese e-commerce giant are down 57% in the past year.

Eternal optimist

Son remains positive. In a series of slides illustrating how technology stocks regained momentum after the Dotcom bubble and Global Financial Crisis, he suggested the same for the current downturn.

And for those nursing heavy losses and wondering what next, Son has a simple message:

(Click to enlarge)

Source: Softbank earnings report

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend