SoftBank Group, a Japanese technology investor, is anticipated to report a net loss for the January-March quarter, despite the strong performance of its core asset, Arm Holdings. Analysts and investors are eagerly awaiting insights into new growth investments, given SoftBank’s substantial liquidity and the possibility of monetizing its significant holding in Arm.
While Arm Holdings saw a significant increase in its share price following strong earnings results, SoftBank’s other listed assets had mixed performance. Shares in companies like Coupang and DoorDash rose, while DiDi Global and Grab Holdings experienced declines. The subdued IPO market adds uncertainty to the monetization prospects of SoftBank’s portfolio of unlisted tech startups.
SoftBank is projected to record a net loss of 72 billion yen ($462.70 million) for the quarter, a notable difference from the previous three months when it reported a net profit of 985 billion yen. Despite indications of readiness for new growth investments, the company’s management remains cautious in its approach.
Analysts suggest that SoftBank may pursue a large, controlling acquisition similar to its purchase of Arm in 2016, which amounted to $32 billion. The company could potentially fund up to $30 billion for such an acquisition by utilizing its liquidity, bond proceeds from March, and negotiating a margin loan on its Arm stake. However, the dominance of the Arm stake within SoftBank’s portfolio poses a risk, especially if market sentiment shifts and impacts the company’s value and fundraising capacity.
Arm Holdings currently trades at premium valuations compared to its competitors, such as Nvidia, raising concerns among analysts about the sustainability of its valuation. Some analysts estimate a fair value for Arm that is significantly lower than its current trading price, emphasizing the potential for a market correction. Investors were disappointed by Arm’s recent revenue forecast, leading to a notable drop in its share price and highlighting the risk of a major rerating in the future.