Softbank’s Investments: Chaos or Clarity?

Estia Ryan

My first phone in middle school was a pastel blue solar hybrid flip phone made by Softbank. That was in 2009, when the Japanese technology company’s stock price wavered around a mere 2,000 yen.

From 2016, prices have shot upwards, peaking at 10,295 yen in October 2017 and stabilising at 8,485 yen after the recent January market correction. Of course, the entire technology industry has been doing extremely well. The outlook for technology companies published by Deloitte is that the future is in ‘buy build partner’ M&A models, so that companies can catch and cover trends such as ‘cloud, cognitive computing, and data analytics’. This is exactly what Softbank has been doing, well ahead of the curve.

Softbank’s ‘Vision Fund’ has dedicated $93 billion to investing in external technologies. The Fund aims to raise a further $7 billion to reach a total of $100 billion in raised capital. CEO Masayoshi Son wishes the Fund to ‘take 20-40% stakes in the companies in which we invest’, fostering an ‘organic relationship’ with company founders. These include artificial intelligence, robotics, and driverless cars. But these three target areas are by no means the entirety of Softbank’s recent investments. The graphic below shows how the Fund’s investments so far – and the results are impressive.

Source: https://cdn.vox-cdn.com/thumbor/wzDgs1iDcDWiai5UM8wF1lQQEUc=/800x0/filters:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/10158271/XiWPj__1_.png

Source: https://cdn.vox-cdn.com/thumbor/wzDgs1iDcDWiai5UM8wF1lQQEUc=/800×0/filters:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/10158271/XiWPj__1_.png

Evidently these acquisitions have benefitted both operating income and net sales, increasing 23% and 3.5% respectively. Softbank explains these jumps in part by Vision Fund, as shown in the 2017 Q3 financials (along with the Delta Fund, though this is significantly smaller with only $6 billion in capital).

These investments aren’t only benefitting Softbank itself. Until now tech companies arguably needed to be part of the ‘unicorn club’ to be considered successful. The unicorn club refers to a billion-dollar valuation stamp mark. The Vision Fund now allows small startups to raise capital faster and more aggressively. Fanatics used the Fund to raise $1 billion and is now valued at $4.5 billion.

Softbank’s global vision is conscious that international investment is key, as it looks towards Europe and Asia to seal more deals. This gives Softbank incredible breadth over the industry, but it also helps cement Softbank within sub industries, notably in the ride hailing business. Grab, an Uber competitor in Southeast Asia, raised $2 billion in 2017 from Softbank. Didi, another competitor in Europe, raised $5 billion. Didi in turn invested in in the Brazilian ‘99’ ridesharing company.

But Softbank’s competitors, and the industry as a whole, are doubting the company’s recent investments. Softbank has been accused of artificially pushing up valuations, causing disturbances within the sector. Competitors note that startups should raise funds themselves in order to be successful instead of relying on giants to prop them up. There are fears around how Softbank vets investment opportunities – with $100 billion, are they recklessly throwing money at small firms?

Softbank’s strategy is clear: invest in companies which have potential but may not have enough capital to pass the ‘unicorn’ threshold. Moving forward, Softbank should insure that the Vision Fund’s capital is being spent wisely and frugally in a market that is more competitive than ever. Only time (and financials) will tell if Masayoshi Son’s innovative idea will pay off – for Softbank, and for the technology sector.

 

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