SoftBank’s Red Ink Return: Curiosity Ignites with Clue Hunt

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SoftBank Poised for Red Ink Despite Arm’s Success

Japanese tech giant SoftBank Group is anticipated to plunge into the red in its upcoming earnings report, defying the strong showing of its prized asset, Arm Holdings.

Awaiting Clues on New Investments

Investors and analysts eagerly await insights into potential growth investments as SoftBank commands vast liquidity and could potentially monetize its significant stake in Arm.

Arm’s Contribution

While Arm, in which SoftBank holds a 90% interest, saw its stock value soar in February, this surge does not directly translate into profits for SoftBank due to Arm’s status as a subsidiary.

Mixed Performance in Listed Assets

SoftBank’s other prominent listed assets exhibited mixed results during the quarter. Coupang and DoorDash witnessed stock gains, while DiDi Global and Grab Holdings faced declines.

Cautious Optimism for Growth

SoftBank’s management has expressed intentions for new growth ventures but emphasized a prudent approach. The Tokyo-based company has refrained from major investments in recent months, leaving analysts anticipating a potential large-scale acquisition similar to its billion purchase of Arm in 2016.

Funding Potential

Nomura Securities analyst Shogo Tono estimates that SoftBank could raise up to billion through its existing liquidity, proceeds from bond offerings, and a possible margin loan using its Arm stake as collateral.

Arm’s Influence

However, while the Arm stake enables substantial investment capacity, its dominance within SoftBank’s portfolio poses a risk. Market sentiments could shift, impacting Arm’s value and diminishing SoftBank’s fundraising prospects.

Valuations and Volatility

Arm’s current premiums far surpass those of competitors like Nvidia, contributing to its substantial weight in SoftBank’s equity value. Some analysts warn that this valuation gap is unsustainable. Morningstar’s Javier Correonero suggests a fairer value for Arm at per share, significantly below its recent trading range of around 0 per share.

Market Response

Arm’s annual revenue forecast, announced in its latest earnings report, fell short of expectations, sending its stock tumbling up to 8.5% in subsequent trading. This volatility highlights the risk associated with a major rerating in Arm’s valuation.

Data sourced from: cnbc.com