(Bloomberg) — SoftBank Group Corp. reported a record profit in its Vision Fund as a surging stock market lifted the value of its portfolio companies, but founder Masayoshi Son wiped out a significant chunk of those gains with his controversial trading in derivatives.
The Vision Fund reported a 844.1 billion yen ($8 billion) profit in the December quarter, surpassing record numbers set just a quarter earlier. A global rally in technology shares has boosted the value of SoftBank’s stakes in publicly traded firms like Uber Technologies Inc. and paved the way for initial public offerings from the likes of DoorDash Inc.
Those gains, which had been widely expected, were offset by fallout from Son’s decision last year to start dabbling in trading stocks and options. SoftBank posted a 285.3 billion yen derivatives loss in the period. That led to an overall loss in the asset management arm of 113.5 billion yen, up from 85.2 billion yen in the previous three-month period.
“The Vision Fund’s stellar performance in the past few quarters continues to cover for the losses on options trading,” said Anthea Lai, an analyst with Bloomberg Intelligence. “SoftBank could argue those derivatives were for hedging purposes, but Son’s venture into trading is definitely not looking good so far.”
In a presentation to investors after the results, Son focused on his successes. He reprised his argument that SoftBank is like a goose that lays golden eggs, from Alibaba Group Holding Ltd. and Yahoo! two decades ago, to companies like Uber and DoorDash more recently. Some 15 companies have gone public from the Vision Fund so far, he said.
“Since the Vision Fund launched, the number of golden eggs is in accelerating mode,” he said, pacing a stage in a white turtleneck sweater and grey jacket. “We are finally in the harvesting stage.”
He said Vision Fund 1 and Vision Fund 2 have invested in a total of 131 companies. In the case of DoorDash, SoftBank invested about $680 million for a stake now worth about $9 billion, he said, while its $7.7 billion investment in Uber is worth $11.3 billion.
The Tokyo-based company had a net income of 1.17 trillion yen in the December period and did not release operating profit figures. At least six more portfolio companies are planning IPOs this year.
“There is a lot of liquidity out there and investors are particularly partial toward tech stocks,” Justin Tang, head of Asian research at United First Partners in Singapore, said ahead of the earnings announcement. “At some point the IPO fatigue sets in, but doesn’t seem like we are there yet. For now, the window of opportunity is open for SoftBank.”
After shares plunged in March with the coronavirus outbreak, SoftBank unveiled plans to sell off 4.5 trillion yen of assets to reduce debt and fund buybacks. The selloff included part of its interests in Alibaba, T-Mobile US Inc. and SoftBank Corp., the Japan telecommunications unit. SoftBank also announced a deal to sell its chip designer Arm Ltd. to Nvidia Corp. for $40 billion.
SoftBank held a total of $22 billion of “highly liquid listed stocks” as of the end of quarter, including a $7.39 billion investment in Amazon.com Inc., $3.28 billion in Facebook Inc. and $1.38 billion in Alphabet Inc. The operation is managed by its asset management subsidiary SB Northstar, where Son personally holds a 33% stake.
The investments were accompanied by derivatives that amplified exposure, but SoftBank has been winding down its options strategy amid a backlash from investors. The fair value of SoftBank’s futures and options positions came to little over $1 billion at the end of December, compared with $2.7 billion the previous quarter. Long call options on listed stocks have dwindled to $1.68 billion from $4.69 billion and short call options on listed stocks declined to $238 million from $1.26 billion of value.
SoftBank has also joined the blank-check company frenzy with plans for several special purpose acquisition companies. SVF Investment Corp. raised $525 million last month to address sectors like mobile communications technology, artificial intelligence, robotics, cloud technologies and software. LDH Growth Corp I plans to raise as much as $200 million to target Latin American and Hispanic markets.
SoftBank last week filed for two more SPACs, seeking to raise another $630 million. The new SoftBank vehicles, SVF Investment Corp. 2 and 3, will target the same diverse areas of technology as the first, including mobile communications and artificial intelligence, according to filings Friday with the Securities and Exchange Commission.
“Consistently good performance by Vision Fund portfolio companies also helps the SPAC’s prospects because investors can extrapolate management expertise,” said Tang at United First Partners. “It underlines their skill in deploying capital.”
(Updates with Son’s presentation from the fifth paragraph)
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