(Bloomberg) — SoftBank Group Corp. reported the highest ever quarterly profit for a Japanese company thanks to an unprecedented windfall from its investment business.
Net income was 1.93 trillion yen ($17.7 billion) for the three months ended March 31, the most for a listed Japanese company dating back to 1990, data compiled by Bloomberg show. Most of it came from SoftBank’s Vision Fund investment arm, whose 2.3 trillion yen profit was supercharged by the successful initial public offering of Coupang Inc. in March.
Masayoshi Son’s investment business went from being the source of the biggest loss in SoftBank’s history just a year ago to the main driver of earnings. A global surge in technology shares has boosted Vision Fund profits to new records for three consecutive quarters, raising the value of its holdings in the likes of Uber Technologies Inc. and paving the way for public listings from startups such as Coupang and DoorDash Inc.
Son touted his performance in a press conference after the results, urging investors to back his strategy. He admitted to mistakes with startups like WeWork and Greensill, but argued that successes have more than made up for such missteps.
“I’m not overjoyed or depressed so easily, just stay calm,” he said, pacing a stage in Tokyo with a black turtleneck and matching black blazer.
His shares have recovered over the past year, in part because SoftBank spent about $23 billion buying back its own stock. That helped push the stock price to its highest in two decades in March.
Son hasn’t said whether he will allocate more capital for buybacks, after completing the programs announced so far. Expectations were mounting that a new commitment would be announced along with the earnings today, but no such plan was unveiled. SoftBank fell almost 10% since Monday, it’s worst two-day performance in eight months.
Coupang, the South Korean e-commerce leader, contributed $24.5 billion to Vision Fund’s profit in the fourth quarter, SoftBank said in the statement. The $4.6 billion offering was the second biggest this year and marks Son’s best return since Alibaba Group Holding Ltd.’s listing in 2014. Auto1 Group SE, a German wholesale platform for used cars which went public in February, contributed $1.8 billion of the gains, while Uber posted a $200 million loss.
SoftBank’s portfolio between its two Vision Funds totaled 125 companies at the end of March. The Japanese conglomerate doesn’t have to sell equity holdings to book income, so most of its profits are unrealized. It exited 11 investments over the past fiscal year, booking a cumulative $4 billion in realized gains.
Son said that limited partners in the first Vision Fund now have a blended internal rate of return of 22%, compared with negative 1% a year ago. SoftBank’s own IRR for the fund is 39%, while its IRR for the second Vision Fund is 119%.
SoftBank also boosted the capital committed to its Vision Fund 2 to $30 billion, up from $20 billion.
At the previous earnings briefing in February, Son said SoftBank may see between 10 and 20 public listings a year. Grab Holdings Inc. will go public in the U.S by July through the largest-ever merger with a blank-check company, valuing the Southeast Asian ride-hailing and delivery giant at about $40 billion. Its Chinese counterpart Didi Chuxing has filed with the U.S. Securities and Exchange Commission for an IPO that could value the company as highly as $70 billion to $100 billion.
“Son needs to convince investors that markets will hold up and they will be able to continue this pace of listing their companies,” Kirk Boodry, an analyst at Redex Research in Tokyo, said ahead of the earnings announcement. “Investors want to know if these Vision Fund returns can continue and whether they can get more share repurchases.”
Coupang lost more than $20 billion in market value since the start of the current quarter, while Uber shed almost $15 billion. Chinese online property platform KE Holdings Inc., whose IPO in August helped Vision Fund set a new profit record that quarter, is worth about $10 billion less, while the valuation of DoorDash fell by more than $1.5 billion.
“The problem facing SoftBank is that the good news is already out,” Atul Goyal, senior analyst at Jefferies, said ahead of the earnings announcement. “What is less visible are the potential losses on blue-chip public stock investments and derivatives. The negatives are pretty opaque and that’s where investors will be looking at during earnings.”
Son’s controversial program of trading options cost him during the quarter. The company posted a 33 billion yen derivatives loss in the period. While the overall profit in the asset management arm was 46 billion yen in the period, the business still posted a full-year loss of 67 billion yen.
SoftBank held a total of $19.9 billion of “highly liquid” securities as of the end of quarter, including a $6.2 billion investment in Amazon.com Inc., $3.2 billion in Facebook Inc. and $1 billion in Microsoft Corp. The operation is managed by its asset management subsidiary SB Northstar, where Son personally holds a 33% stake.
The investments were accompanied by derivatives that amplified exposure, a strategy that triggered a backlash from investors. The fair value of SoftBank’s futures and options positions came to $1.6 billion at the end of March, compared with little over $1 billion the previous quarter and $2.7 billion the one before. Long call options on listed stocks have dwindled to $1.6 billion from $4.69 billion half a year ago and short call options on listed stocks declined to $84 million from $1.26 billion of value.
(Updates with Son comments in fifth paragraph)
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