SoftBank Group Corp.'s Vision Fund investment arm is expected to announce its earnings on Thursday, and analysts predict that the company may report a smaller quarterly loss or even break even, thanks to a global rally in tech stocks. However, this wouldn't be enough to offset the three consecutive quarters of significant losses, and the Vision Fund may still post a larger annual loss than the previous year's record of ¥2.6 trillion loss, with Astris Advisory's Kirk Boodry predicting a total loss of roughly ¥4 trillion ($30 billion) in the year ended March.
Investors are now questioning if the worst is over for tech startups as SoftBank's valuations of Vision Fund investments are challenging to estimate due to the high proportion of unlisted companies in the portfolio, making SoftBank's earnings reports the best barometer. SoftBank's ability to book investment gains has been crippled due to weak risk appetite for unprofitable startups. Founder Masayoshi Son is slated to skip Thursday's earnings call, leaving Chief Financial Officer Yoshimitsu Goto in charge of talking up a planned initial public offering of chip design unit Arm Ltd. and assuaging any fears about its finances.
There are four key points to watch during the earnings announcement:
1. Is the worst over for tech startups? SoftBank has marked down investments on high-profile and unlisted startups ranging from India's Oyo Hotels to Sweden's Klarna Bank AB over the last year. Focus will be on any sign of improvement in the Vision Funds' performance, such as their internal rates of return as of end-March.
2. How strong is SoftBank's balance sheet? SoftBank's loan-to-value ratio shows the debt load of the company compared with the current value of all of its holdings. The figure stood at 18.2% in the December quarter. Analysts often use net asset value per share, which was ¥9,472 per share at the end of December. Morgan Stanley MUFG sees a 40% to 50% holding company discount as appropriate.
3. How big will Arm's IPO be? Chip designer unit Arm's earnings will help determine the success of its highly-anticipated IPO later this year, and by extension, SoftBank's ability to go on the offensive again. Bankers have pitched a valuation of between $30 billion to $70 billion for the listing.
4. How much of SoftBank's Alibaba stake is left? SoftBank's Alibaba stake has helped finance the company's past transformations, and analysts predict that this resource may be drying up, underscoring SoftBank's growing reliance on Arm to power future bets. On paper, SoftBank still held close to 14% of Chinese e-commerce leader Alibaba Group Holding Ltd. at the end of December. However, in actuality, that stake is estimated to be much smaller. SoftBank offloaded an additional $7.3 billion in Alibaba shares this year through prepaid forward contracts, reducing its unencumbered stake in Alibaba to about 3.8% by the end of March, according to Astris Advisory's Boodry.
Investors and analysts will be closely watching the earnings announcement for any signs of improvement in SoftBank's finances and a potential rebound in the tech startup sector.
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