SoftBank Group, a Japanese technology investor, is facing challenges as it is expected to report a net loss of 72 billion yen ($462.70 million) for the January-March quarter. This is a significant shift from the 985 billion yen net profit recorded in the previous three months. Despite the success of its core asset, Arm Holdings, and other listed assets like Coupang and DoorDash, SoftBank's overall performance has been mixed.
Analysts and investors are eagerly awaiting clues about new growth investments from SoftBank. The company has ample liquidity and can monetize its huge holding in Arm. While new investments were minimal in the October-December quarter, SoftBank's management has expressed readiness to make new growth investments. However, they emphasize adopting a cautious approach in the current market environment.
SoftBank's potential for a large, controlling acquisition, similar to its $32 billion purchase of Arm in 2016, poses risks. While SoftBank could fund up to $30 billion for such an acquisition by leveraging its liquidity, bond proceeds, and an Arm stake margin loan, the dominance of the Arm stake within SoftBank's portfolio presents risks. If market sentiment shifts, SoftBank's value and fundraising capacity could be negatively impacted.
Currently, Arm Holdings trades at premium valuations compared to competitors like Nvidia, constituting almost half of SoftBank's equity value. Some analysts warn that this valuation is unsustainable. For instance, Moningstar analyst Javier Correonero estimates a fair value for Arm at $57 per share, significantly lower than its recent trading range around $100 per share. Investors were disappointed by Arm's annual revenue forecast, leading to a significant drop in its share price.
SoftBank Group is facing challenges despite the success of its core assets. The company's upcoming earnings report is expected to show a decline in profitability, raising concerns among analysts and investors. The need for new growth investments and the potential risks associated with large acquisitions highlight the uncertainties surrounding SoftBank's future performance. Investor sentiment and market valuations, particularly concerning Arm Holdings, will play a crucial role in determining SoftBank's long-term success.