Why prudent investors are chary of SoftBank

Many of SoftBank’s high-profile IPOs are currently yielding negative returns (Photo: AP)
Many of SoftBank’s high-profile IPOs are currently yielding negative returns (Photo: AP)


The successful IPO of Arm Holdings has boosted SoftBank’s war chest, but canny investors remain cautious about the companies it backs

When UK-based semiconductor and software design firm Arm Holdings filed for an initial public offer (IPO) last month, it was seen as crucial for SoftBank Group, its owner and the biggest name in tech investing. The IPO was a success, but SoftBank’s misadventures with past investments linger. Following the IPO, valuation guru Aswath Damodaran told CNBC that SoftBank’s holding in Arm was a red flag – that he would want to avoid whatever SoftBank tells him to buy, and that it didn’t “have a soft touch when it comes to building businesses".

Data shows why prudent investors are exercising caution. Several of SoftBank’s high-profile IPOs are currently yielding negative returns: Chinese ride-hailing company DiDi Global, valued at $63 billion, is down 77% from its offer price, and artificial intelligence (AI) software provider SenseTime is down 64%.

It's not a reflection of performance, though. DiDi’s revenues jumped by 50% in the recent quarter and its losses narrowed, while SenseTime unveiled its own ChatGPT rival in April. Rather, the concerns are around pricing, partly a result of SoftBank's tendency to invest in late-stage companies and partly its reliance on hype around a sector.

One reason Arm’s IPO sailed through is the buzz around AI. Arm's share price rose 25% on debut but is now trading just 2% above its offer price. Arm's listing was highly anticipated because of what it can do for SoftBank by virtue of being its biggest portfolio holding. Arm’s was the biggest IPO this year, and could spark a revival in the IPO market.

Arm and a leg

Arm Holdings going public was especially important for SoftBank, which acquired the company for $32 billion in 2016 and was looking to cash in. While Arm is now the single biggest investment in SoftBank’s portfolio, all is not hunky dory with it. Its revenues and profits have been growing on the back of demand for smartphones and computers. In 2022-23, however, revenues shrank marginally due to tepid smartphone sales.

SoftBank's plan A was to sell Arm to chipmaker Nvidia in 2020 for $40 billion, which would also have given it a stake in Nvidia. But that deal was blocked by regulators. It was so keen for its plan B — a public listing — to succeed that it left about a billion dollars on the table by pricing it at $51 instead of $52. The bet paid off. It was oversubscribed 12 times. The price shot up by 25% on debut before levelling off.

Profit woes

This is reflected in SoftBank's own finances. Its cumulative losses from investments in the top 15 companies of SoftBank's Vision Fund 1 that went public, and in which it still has a stake, amount to more than $1.3 billion. This is in spite of having profitable investments such as Coupang and DoorDash, where its cumulative gains were $8 billion and $6 billion, respectively.

The losses from WeWork, for which it has received the most flak, stood at $3.4 billion as of June 2023. WeWork, which went public last month, has already warned that it could file for bankruptcy. The overall impact of these investments on SoftBank's financials has been negative. For its June quarter it posted a net loss of $3.3 billion, even though its first Vision Fund posted an investment gain of $1.1 billion, its first in the past five quarters. As the economy improves, analysts expect it to turn profitable.

Investment uptake

Even before the launch of Arm's IPO, SoftBank had been stepping up its investments. The investments made by its two Vision Funds and its Latin America Fund didn't cross $500 million in the three quarters from Q3 of 2022 to Q1 of 2023, down from an average of about $14 billion in the Q2 and Q3 of 2021.

SoftBank is hoping to continue riding the AI wave. The company is "looking to invest tens of billions in AI after completing Arm’s IPO", the Financial Times reported. It is also looking to invest in or collaborate with OpenAI, the creator of ChatGPT. SoftBank is flush with money after Arm’s listing. That will help it to be one of the biggest players in the tech space, and might even turn around its fortunes. But prudent investors may remain cautious. is a database and search engine for public data

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