How to Value SoftBank? - The Wall Street Journal

SoftBank CEO Masayoshi Son answered questions during a news conference Wednesday in Tokyo.
Photo: Kiyoshi Ota/Bloomberg News

Jacky Wong

The Wall Street Journal

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@jackycwong
jacky.wong@wsj.com

Feb. 12, 2020 7:02 am ET

How should investors value SoftBank? Relative to its operating income or net asset value?

Masayoshi Son, founder of the Japanese technology conglomerate, spent much of his time during a Wednesday briefing on its quarterly earnings exploring that question. He believes that since SoftBank has transitioned from a telecom company into an investment company, investors should look at it through the lens of its assets. He has every reason to hope so: SoftBank’s net asset value stands at $228 billion, according to its own estimates, while its market capitalization is only half that, at $109 billion.

Meanwhile, the company’s operating income has become dominated by fluctuations in the valuation of its investments, especially since the launch of its $100 billion Vision Fund in 2017. Mr. Son argues that these numbers may not be meaningful in the long term—particularly as, for arcane accounting reasons, they don’t include gains on its 25% stake in Chinese e-commerce giant Alibaba.

Again, Mr. Son’s reasoning is motivated. On Wednesday the Vision Fund segment reported $2 billion in operating losses due to declines in the valuation of investments such as Uber and WeWork. SoftBank took control of WeWork last quarter after the shared-office company’s failed initial public offering. Mark-to-market gains on its Alibaba stake, had they been counted, would have been roughly $30 billion last quarter.

Lately, investors have indeed been paying attention to SoftBank’s net asset value, prompting a 26% surge in its stock over the past week alone. The initial catalyst was a Wall Street Journal report last week that activist hedge fund Elliott Management wants the company to buy back $10 billion to $20 billion of its own shares, having amassed a more than $2.5 billion stake.

The approval of the merger between T-Mobile and Sprint, in which SoftBank owns an 84% stake, also sent its Tokyo-listed shares up 12% Wednesday. The 78% jump in Sprint stock in U.S. trading Tuesday added $12.8 billion to SoftBank’s net assets. Once the deal completes, the Japanese company will also no longer need to consolidate Sprint’s big debts onto its own books.

The valuation gap between SoftBank’s shares and its net assets could continue to close in the short term. Mr. Son said he would love to do a buyback consistent with Elliott’s demands, though their views may differ on timing and size.

But SoftBank’s run of poor quarters should also matter to investors. The longer-term question isn’t just how much its assets are worth, but also whether Mr. Son is going to carry on spending money on value-destroying deals like WeWork. This is especially relevant as SoftBank plans to launch a second technology fund, likely with mostly its own capital.

Mr. Son promised not to make a mistake like WeWork again. But investors will need a clearer steer on where SoftBank is heading if they are ever to take its assets at face value.