(Bloomberg) -- Masayoshi Son is launching a new asset management venture to buy stocks in publicly traded companies, expanding SoftBank Group Corp.’s investment efforts as it rebounded from record losses to profitability.The Tokyo-based company reported net income of 1.26 trillion yen ($11.8 billion) for the three months ended June 30, following a loss of 1.44 trillion yen three months earlier. The profit was boosted by more than 1 trillion yen in one-time gains from the sale of Sprint Corp. and shares in T-Mobile US Inc.Son has shifted his attention to investments in recent years after building his fortune in the telecom sector. The asset management initiative expands on previous efforts like the $100 billion Vision Fund, which he set up three years ago to take stakes in private startups. The new arm has already purchased shares in Apple Inc., Amazon.com Inc. and Facebook Inc.“As an investment company, we need to explore various angles and scope. But our focus is still on companies driving the information revolution,” said Son. “This is the purpose of our company.”SoftBank will own 67% of the asset management firm, while Son personally will own the rest. The unit has about $555 million in capital, he said.It’s not clear why Son thinks SoftBank will have an edge in picking stocks, moving into a field crowded with heavyweights like Fidelity Investments and BlackRock Inc. The effort may increase the volatility of SoftBank earnings, which has grown with initiatives like the Vision Fund.“Investors will need to build greater risk into their expectations -- and Masa investing alongside is not a good look,” said Kirk Boodry, an analyst at Redex Research who writes for Smartkarma. “Launching a new investment vehicle targeted at public tech when Nasdaq is near all-time highs with bubble concerns seems like a good way to keep the share price discount to public value from closing.”The Japanese billionaire has pulled off a remarkably speedy comeback after the worst loss in his company’s 39-year history. A global rally in technology shares lifted the value of SoftBank’s stakes in publicly traded firms like Uber Technologies Inc. and improved the prospects for startups in its portfolio, from China’s Didi Chuxing to South Korea’s Coupang.Far from striking a winning pose on Tuesday however, Son emphasized the importance of defense. He opened his presentation with slides depicting a 16th century battle between two Japanese lords. Oda Nobunaga, who would go on to unify Japan, won the engagement by sheltering his riflemen inside a wooden structure to protect them from samurai on horseback.“You can’t skimp on defense,” Son said. “We need to strengthen our defense. Defense is cash.”SoftBank also stopped reporting operating profit, long a key metric tracked by investors. It said the figure is “no longer meaningful” as the company becomes a “strategic investment holding company.”SoftBank is in the process of offloading 4.5 trillion yen in assets to fund share repurchases and to pay down debt. The company already raised 4.3 trillion yen through sales that include stakes in T-Mobile, Alibaba Group Holding Ltd. and its domestic telecom unit, completing about 95% of the program.The Vision Fund returned to profitability, following a 1.13 trillion yen loss in the previous quarter. SoftBank booked a 296.6 billion yen gain on Vision Fund investments in the quarter, including 111.4 billion yen in realized gains after selling a portion of its shares in four listed portfolio companies. About $1.4 billion of the unrealized gains came from holdings in public companies, with Uber responsible for about $700 million and Ping An Good Doctor, Vir Biotechnology Inc. and Guardant Health Inc. contributing about $200 million each.“It’s still too early to say that it will be all profits at the Vision Fund going forward,” Son said in a live-streamed briefing. “But things are turning around in a big way.”Several SoftBank-backed companies have also pulled off successful initial public offerings, raising the prospects for more in the future. Online home-insurance provider Lemonade Inc. more than doubled in the days after its initial public offering last month, while oncology drug developer Relay Therapeutics Inc. has surged about the same amount since its trading debut.Beike Zhaofang, a Chinese online property brokerage backed by SoftBank, said last week it is seeking to raise about $2 billion in a U.S. IPO. DoorDash Inc., a U.S. food delivery company backed by SoftBank, has filed paperwork for a public stock listing. Online insurance platform Policybazaar and e-commerce giant Coupang are preparing for offerings in 2021.Son confirmed that SoftBank is looking to sell or take public Arm Ltd., the chip design firm that he bought four years ago for $32 billion. He said he may accelerate plans for an Arm IPO from the original 2023 schedule or he may sell part or all of the firm. Bloomberg News reported earlier this month that Nvidia Corp. is in advanced talked to acquire Arm.Son put plans for a second Vision Fund on hold after missteps, including the meltdown at WeWork. Now, the fund’s upbeat results and a renewed investor appetite for risk could revive the idea, according to Atul Goyal, senior analyst at Jefferies Group.”Our strategy hasn’t changed,” Son said at the briefing. “We still plan on unicorn hunting with Vision Fund 2, 3 and so on.”(Updates with details from the briefing from ninth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- SoftBank Group Corp. has given up pretending to operate anything.Once the owner of two telecom companies and a collection of other operating businesses, the Japanese conglomerate would report quarterly operating profit and net income.That’s how most normal companies do it. In days past, the former category included profits from Sprint Corp. and Softbank Corp., as well as operating income from the SoftBank Vision Fund, but excluded gains or losses from other investments.On Tuesday, SoftBank announced it will no longer bother reporting operating income, instead “gain (loss) on investments will be used in order to show investment performance in the consolidated financial results.” The catalyst was the sale of Sprint to T-Mobile US Inc., meaning that the U.S. mobile operator is no longer a consolidated entity. The change makes sense. SoftBank hasn’t “operated” anything for a while, instead cobbling together a growing pile of investments both within the Vision Fund (such as ByteDance Ltd. and Uber Technologies Inc.) and outside (including Alibaba Group Holding Ltd. and domestically listed telco Softbank Corp.).In the June quarter, the major driver of earnings was the sale of shares in T-Mobile. A year earlier, it was a rise in the value of its stake in Alibaba. SoftBank Corp. continues to provide a handy income stream.With the Vision Fund’s $98.6 billion almost fully invested, there’s not much left to be done hunting for unicorns and handing out fat checks. Earnings from the fund, generally based on mark-to-market valuation changes, fell 39% for the period.This shift in reporting may be all the more relevant in light of one of the few remaining companies that SoftBank controls, but which is neither listed nor controlled by the Vision Fund: Arm Ltd.SoftBank seems desperate to offload the British semiconductor company just four years after acquiring it for $32 billion. My colleague Alex Webb and myself recently advised against an IPO because the unit’s revenue has slowed and SoftBank would get a better price if it waited for a pickup in demand for new devices like internet of things and self-driving cars. The news flow over the past few weeks indicates that Softbank Chief Executive Officer Masayoshi Son and his team have been doing the hard sell, with names like Nvidia Corp., Taiwan Semiconductor Manufacturing Co. and Foxconn Technology Group all in the mix.Should a sale go through, even a partial divestiture, the pool of companies that Son’s team controls will shrink further. I’d hazard that we could see a further offloading of its shares in SoftBank Corp., too.These moves would put even more of the burden of earnings on returns from its portfolio of investments, of which Alibaba remains the largest. Today, SoftBank Group’s net asset value can largely be tracked in real time simply by following the stocks it owns. Sadly, the company just took a back step backward for transparency by announcing Tuesday that it would no long post daily updates on its website.For investors, the reporting shift highlights the truth of what SoftBank Group has become: a fancy, highly managed fund — a hedge fund, perhaps — whose returns ought to be benchmarked against indexes of its peers and not as the technology company Son once ran. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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