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Collapse Of Sale of Arm Hits SoftBank’s Q4 Profit By 97%

Collapse Of Sale of Arm Hits SoftBank’s Q4 Profit By 97%
The failure of an $80 billion agreement to sell chip designer Arm as well as a 97 per cent decrease in its quarterly earnings was reported by Japan’s investment conglomerate SoftBank Group Corp on Tuesday. This performance piled up more pressure on the conglomerate to improve its slumping stock.
In the October-December quarter, Masayoshi Son's investment firm had a net profit of 29 billion yen ($251 million), a fraction of the 1.2 trillion yen profit it had made in the same quarter a year earlier when its tech portfolio soared.
It stated that the sale of Arm to Nvidia had failed due to regulatory issues. This is a huge blow for SoftBank's fund-raising aspirations, which come at a time when valuations are once again under pressure due to investor caution and fears about China's regulatory assault on digital companies.
"We were in the middle of a blizzard and the storm has not ended, it has got stronger," Son, SoftBank's founder and chief executive, told a briefing following the release of the results.
With central banks reducing pandemic-related stimulus, investors are becoming warier of IT companies that promise future rewards. Exposure to China, where regulators have taken action against tech businesses, has also harmed SoftBank. Alibaba, the e-commerce behemoth in which SoftBank has a stake, had its stock fall by a fifth in the three months leading up to the end of December.
The Vision Fund's investment gain fell to 111.5 billion yen in the third quarter, down from 1.4 trillion yen a year ago.
"Even though some of the public companies have come down in value, there have been significant follow-on funding rounds where outside institutional investors have led those rounds", Vision Fund's Chief Financial Officer Navneet Govil told Reuters.
A number of portfolio businesses that SoftBank had invested in are currently trading well below their initial public offering (IPO) prices, with WeWork, Grab, and Auto1 all sliding during the quarter.
As SoftBank invests through its Vision Fund unit, which manages the $100 billion Vision Fund and a smaller second fund and has become a priority for the company, such assets can be sold down or used as collateral for loans.
At the end of 2021, Vision Fund 2 had pledged $51 billion in funding and had invested $43.1 billion in more than 200 enterprises. Industry observers have seen a divergence between buoyant private markets and public market skepticism, but Govil believes that gap is shrinking.
"We are seeing some healthy rebalancing... at some of the more extreme ends of the market," he said. "We did turn down quite a few transactions because we thought valuations were rich."
During the quarter, a number of portfolio businesses of the company, including sports e-commerce firm Fanatics, held fundraising rounds. Over the course of both funds, Vision Fund has given $44.2 billion to its limited partners.
The results come at a pivotal time for the conglomerate, as key executives leave, including Chief Operating Officer Marcelo Claure, who oversaw WeWork's restructuring and founded the group's Latin American-focused fund.
In November, SoftBank announced a 1 trillion yen buyback. The company's stock fell 0.9 per cent ahead of the results report, and it has lost over half of its value from its highs in March of last year.

Christopher J. Mitchell

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