Softbank Group errs on the side of caution after Q1 profit

Bengaluru: Softbank Group struck a cautious tone for future investments even as it swung to a profit in the April-June quarter aided by gains in some of its tech stocks which helped offset its other losses.

“Since a very tough time last year when we had shifted to the offence mode, we are back in the investment mode. But at the same time, we are very selective and very careful in discussions with the investment committee to make sure that we carefully select the investee companies for vision fund II,” SoftBank finance chief Yoshimitsu Goto said in the earnings call.

While the two Vision Funds including LatAm funds cumulatively made investment gains of $12 million, Softbank’s Vision Fund 2 made a loss of $2.6 billion. The first vision fund made a profit of $2.8 billion. Overall, Softbank Group reported a first-quarter net profit of ¥10.5 billion from a loss of ¥316.2 billion in the same period a year earlier. Its net sales grew 9.3% to ¥1.7 trillion.

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The vision funds also generated liquidity of about $0.8 billion in the first quarter from some of its investments through full exits in companies including SenseTime and Paytm and partial exits from other portfolio companies. The investment firm also plans to buy back about $3.4 billion in shares as it faces increased pressure from investors including Elliott Management to improve its stock price, as per several media reports.

The Japanese technology investor is also systematically shedding its stake in China’s Alibaba. “Four years ago, we were concentrated on China, namely Alibaba. But now we are looking at Europe more than any other regions to mitigate the risk of China-centric position,” Goto said, adding that the group’s share has been reducing over the last three years.

IPO benefit

The company also stands to benefit from several growth-stage IPO bound companies from its vision funds. Some of its Indian portfolio companies that are looking to go public include FirstCry, Unicommerce, Swiggy, Ola Electric and Ola across the two funds. Its other most valued investments include Flipkart and Lenskart.

Also Read: SoftBank licks its lips as four portfolio firms head for IPOs

AI adoption

Softbank is particularly bullish about artificial intelligence (AI) and is keen on building a robust pipeline of companies that are built on this technology. Some of its investments in AI over the last year include Perplexity, AlphaSense, Wiz and Tractable.

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The group is seeing a growing use case of AI adoption across its portfolio companies including Grab, Klarna, Meesho and ByteDance. For instance, Meesho is using GenAI in customer support operations, which has resulted in a 20% improvement in customer experience scoring while Klarna is leveraging a GenAI assistant to handle almost 70% of customer queries, driving $40 million profit improvement.