Is SoftBank’s share price worth the risk in 2022?

SoftBank [9988.T] The share price experienced rough times in 2021. A massive sell off in Asian markets hit the value of the bank’s portfolio, as did a string of IPOs that failed to pay off for the month. Tokyo investment bank.

With the stock falling more than 31% (through Dec. 11) for the year, Softbank’s talismanic CEO – and investment supremo – Masayoshi Son is hopeful 2022 won’t be so punitive.

What’s going on with the SoftBank share price?

Softbank’s stock price losses intensified in November, after the bank’s Vision Fund unit reported a quarterly loss of $ 7.3 billion. In total, the company recorded a net loss of $ 397.0 billion for the period. The unrealized loss of the unit on valuation of public companies totaled $ 17.7 billion. Coupang, the South Korean e-commerce site, was responsible for $ 6.7 of the loss, while Didi was $ 6.1 billion.

Between November 15 and Friday’s close, SoftBank’s stock price fell 7.2%. Meanwhile, sentiment around Chinese tech companies has only soured even more – a problem given that the performance of these companies has a demonstrable effect on both SoftBank’s share price and on its profits.

Ali Baba [BABA], SoftBank’s most valuable holdings, fell more than 22% last month and 50% for the year. The Chinese e-commerce company has been hit by double state intervention, including a hefty $ 2.8 billion fine earlier in the year and slower growth. Alibaba’s share price is now approaching its lowest level in five years, with hopes that a management team reshuffle will pay off in 2022.

SoftBank has also invested heavily in ridesharing app Didi, which made headlines earlier in December after announcing it would be pulling off the New York Stock Exchange to list in Hong Kong. The delisting comes after intense pressure from regulators and many will wonder if SoftBank’s support for Chinese tech companies still makes sense.

“As an institutional investor, it is very difficult to explain to our clients why we would invest in SoftBank Group,” Makoto Kikuchi, chief investment officer at Myojo Asset Management Co., told Bloomberg. Worst possibility: that SoftBank’s business model no longer makes sense. “

Even worse news for SoftBank investors is that the ARM deal to Nvidia could fail. The US Federal Trade Commission is suing to block the transaction, arguing it would create a conglomerate in the semiconductor industry and stifle competition. A blow given that Softbank was talking about a potential windfall of $ 80 billion if the sale goes through.

“The technologies of tomorrow depend on preserving today’s competitive and advanced chip markets. This proposed deal would distort Arm’s incentives in the chip market and allow the combined company to unfairly undermine Nvidia’s competitors, ”said Holly Vedova, director of the FTC’s Competition Bureau, in a statement.

Is the outlook too bearish on Softbank?

Bearish is a word that could be used to describe Softbank’s 2022 outlook. Of course, SoftBank’s share price has seen encouraging spikes. Nothing more than the uptrend of the stock after a 1,000 billion yen share buyback plan on November 8.

Those gains have since evaporated, and with little information on whether Chinese regulators will be lenient on tech companies next year, there is understandably some concern about what 2022 holds for SoftBank’s investments.

“For the next few quarters, we don’t have much to look forward to in the Vision Fund sector,” Kirk Boodry, analyst at Redex Research in Tokyo, told Bloomberg ahead of the second quarter results. “Sure, there are a few upcoming IPOs that they can point out, but it’s just drowned out by all the negative noise. And none of them will be as big as Didi.

It’s not so bad though: Son suggested the bank scale back its investments in China, pivoting a second Vision Fund towards more forward-looking technologies such as AI. The group’s liquidity stood at 5,000 billion yen at the end of September, up 9% from 6 months earlier.

Softbank’s market cap is 9.434T yen and the stock has a forward price-to-earnings ratio of 4.68x, which suggests that it is a potentially undervalued company. Although the amount of a good deal depends on whether SoftBank’s stock price performance in 2022 is significantly different from that of 2021.

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Martin E. Berry