On Friday, SoftBank stock experienced a significant decline of 8% in Tokyo. Over the past two days, the technology conglomerate has suffered a roughly 14% drop in its shares. This dramatic fall has led to a $2.6 billion reduction in the fortune of SoftBank’s founder, Masayoshi Son, largely due to the Bank of Japan’s unexpected interest rate hike. Despite this recent downturn, Son’s net worth has actually increased by approximately $2.7 billion from the $11.3 billion he started the year with, according to the Bloomberg Billionaires Index.
Impact of Interest Rate Hike on SoftBank Stock
The recent sharp decline in SoftBank stock can be attributed to broader market disturbances caused by the Bank of Japan’s move to raise interest rates earlier than anticipated. This policy shift has unsettled investors and triggered a notable sell-off in Japanese stocks, marking the most significant drop since 2016. The increased rate has contributed to the strengthening of the yen, which reached a four-month high on Thursday. This currency appreciation poses additional risks for SoftBank’s international operations, further compounding the challenges faced by the company.
SoftBank’s substantial investment in chipmaker Arm Holdings Plc, which initially soared this year due to expectations of benefiting from the AI boom, has also faced turbulence. Arm’s stock plunged 16% on Thursday after the company reaffirmed its existing annual sales forecast, disappointing investors who had hoped for more optimistic projections.
SoftBank Stock and Portfolio Performance
The turmoil surrounding SoftBank stock has highlighted the company’s broader financial struggles. SoftBank reported a substantial increase in losses, with its Vision Fund unit facing approximately $19 billion in losses. This figure represents a nearly 70% surge in losses compared to the previous year. The Vision Fund has experienced unrealized losses of $1.6 billion each in SenseTime Group and GoTo, and nearly $800 million in DoorDash. Consequently, the fair value of SoftBank’s portfolio has been marked down by $2.3 billion to $138 billion over the quarter.
SoftBank attributes the decrease in portfolio value to markdowns of underperforming companies and declines in share prices among comparable market companies. In response to these financial challenges, Chief Financial Officer Yoshimitsu Goto has indicated that the company has entered “defense mode.” SoftBank is preparing for three potential scenarios: a gradual market recovery this year, a rebound by the second half of the year, or a worst-case scenario extending into early 2024.
The difficulties faced by SoftBank Vision Fund are impacting many of its portfolio startups, which are also grappling with losses. Historically known for its high-conviction growth investments, SoftBank is now expected to be more selective in its investment approach. Over the past year, the company has closed 25 deals and invested around $400 million in the quarter ending March. This contrasts sharply with the over 40 deals and billions in investments during its peak in 2018.
Amidst these challenges, SoftBank is focusing on maintaining stability within its existing portfolio. The company estimates that 94% of its portfolio companies across all funds have a cash runway of more than 12 months, providing a buffer against immediate financial pressures.
The surge in dealmaking by SoftBank Vision Fund and Tiger Global in 2021, driven by expectations of a continued stock market rally, has since faltered. This decline, exacerbated by rising interest rates and geopolitical events such as Russia’s invasion of Ukraine, has devalued many tech companies and left investors scrambling to mitigate losses. For instance, Invesco has reduced its valuation of Swiggy to $5.5 billion, down from $10.7 billion a year ago. Similarly, Vanguard has cut Ola’s valuation to below its 2019 level. Both of these startups are prominent portfolio firms of SoftBank Vision Fund in India.
On a more positive note, SoftBank Group has reported that the initial public offering (IPO) of Arm is progressing “smoothly.” If successful, this IPO could yield significant returns for the conglomerate. The previously proposed $40 billion sale of Arm to Nvidia was ultimately thwarted by regulators. Current estimates suggest that the IPO could result in a market cap ranging from $30 billion to $80 billion, although the IPO window has been closed for some time and tech stocks have been struggling.
SoftBank Group also reported that 94% of its startup holdings maintain a financial runway of at least 12 months. There has been no update on the potential launch of Vision Fund 3, with the firm previously stating it would consider this only after fully deploying Vision Fund 2’s capital.
You might also be interested in – Shares of Bandhan Bank surged to the 10% upper circuit limit following a strong Q1 performance and an increase in target prices.
