Published : Nov. 6, 2014 - 21:02
Billionaire Masayoshi Son said SoftBank Corp.’s investors are overlooking the potential for another hit in his venture portfolio after the $85 billion payoff from Alibaba Group Holding Ltd.
“SoftBank is a goose with more golden eggs in its belly, even if it’s too early to bring them to the market,” Son said at a briefing in Tokyo. “SoftBank is currently valued less than the sum of its golden eggs.”
Japan’s third-largest wireless operator has a market value of about $82 billion, while its public shareholdings are worth 12.8 trillion yen ($112 billion), according to data on the company’s website. That includes stakes in U.S. wireless carrier Sprint Corp., gamemaker GungHo Online Entertainment Inc. and Web portal Yahoo Japan Corp.
SoftBank also has investments in more than 1,300 other companies, including news website Buzzfeed Inc. and Cheezburger Network, a collection of humor websites.
Son said his focus in the future will be on taking stakes of 30 percent to 40 percent in Internet companies based in Asia.
Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Corp., speaks during a news conference in Tokyo on Tuesday. (Bloomberg)
Son started his investment in Alibaba with $20 million in 2000, and it took 14 years for the company to evolve into China’s biggest Internet shopping mall. A 15 percent drop in SoftBank’s shares this year suggests investors have concerns about its shorter-term prospects. The company this week reduced its annual operating profit outlook by 10 percent, citing mounting losses at Sprint.
“The share price is about right, considering the company’s operating profit level,” said Hideki Yasuda, a Tokyo-based analyst at Ace Research Institute. “It’s an argument about how to measure enterprise value, and Son believes investors should pay closer attention to SoftBank’s asset portfolio.”
In addition to the 32 percent stake in Alibaba, SoftBank owns 36 percent of Yahoo Japan Corp. and 40 percent of GungHo. Those stakes are worth $8.6 billion and $1.8 billion, respectively, according to its website.
Its 80 percent ownership of Sprint is worth about $16 billion, less than the $22 billion SoftBank paid last year. Sprint’s shares have slumped 54 percent in New York this year. After the company reported its 11th straight quarter of subscriber losses this week, the stock fell 21 percent in the last two days alone.
SoftBank this week cited losses at Sprint for cutting its operating profit forecast to about 900 billion yen in the 12 months ending March. That compares with the 1.09 trillion yen it reported a year earlier. The shares dropped 2.3 percent to 7,840 yen in Tokyo Wednesday.
“Investors are probably more interested in what will happen with Sprint,” said Tomoaki Kawasaki, a Tokyo-based analyst with Iwai Cosmo Securities Co. “Mobile is not a happy topic for the company right now, so Son wants to draw attention to the value of SoftBank’s investments.”
SoftBank trades at 14.8 times estimated earnings, according to data compiled by Bloomberg. That compares with a price-to-earnings ratio of 21.4 for Warren Buffett’s Berkshire Hathaway Inc.
Son this week said SoftBank’s investments will one day confer a premium like that enjoyed by Buffett. He also acknowledged that the company’s debt pile might be weighing on valuation.
“There is such a thing as a Buffett premium, because the world sees him as an investment god,” Son said. “There will come a day when the market will give a premium to SoftBank.”
His $51 billion acquisition spree in the past five years has saddled SoftBank with 9.98 trillion yen in debt. The company has been Japan’s biggest corporate bond issuer for the past two years, raising 1.52 trillion yen. It paid 271.5 billion yen in interest last fiscal year, more than half of its net income for the period, according to earnings data.
“The market must be thinking Son will have another crazy acquisition and damage the company’s value again,” Son said. “SoftBank doesn’t have a long track record and there’s probably something like a ‘Son discount’ at work. I think that’s fair.” (Bloomberg)