SoftBank Group Earnings: Continues With Defense Mode; Raising FVE to JPY 7,000 on Reduced Debt

SoftBank 9984 continued to clamp down on new investments in the fourth quarter of fiscal 2022 (quarter ended March 2023), but management indicated a willingness to selectively invest in suitable artificial intelligence opportunities in fiscal 2023. The company produced a loss on investments of JPY 835 billion in fiscal 2022, with a JPY 5.3-trillion loss from the SoftBank Vision Funds partially offset by holding company gains on sale from Alibaba transactions of JPY 4.6 trillion. Indeed, from a financing perspective, SoftBank has now effectively used or sold its entire state in Alibaba, having now monetized JPY 9.7 trillion worth of shares from a JPY 7.4-billion investment. This equates to a staggering 57% internal rate of return, or IRR, on the investment from 2000 to May 2023. A weaker Japanese yen increased SoftBank’s net asset value by JPY 1.3 trillion in fiscal 2022. We increase our SoftBank fair value estimate to JPY 7,000 from JPY 6,900 previously due to increased valuation of the T-Mobile and Deutsche Telecom stakes offsetting the reduction in Vision Fund 2 value, and the reduced net debt. This valuation includes zero value for WeWork and our 35% holding company discount on the SoftBank portfolio. Our no-moat rating is retained, as we rate SoftBank as an investment holding company rather than an operating company.

SoftBank’s leverage decreased over the fourth quarter, with the loan/value ratio—under the firm’s calculation method, which excludes asset-backed finance—moving from 18.2% at the end of December 2022 to 11.0% at the end of March 2023. This is well below the company’s self-imposed ceiling of 25% in normal times.