Mar 15, 2023

SVB Blowout May Drive SoftBank Shares Below Son’s Pain Point, Trigger Buyback

Hideyuki Sano, Bloomberg News

Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., delivering a speech in November 2020. , Photographer: Kiyoshi Ota/Bloomberg

(Bloomberg) -- The sudden collapse of Silicon Valley Bank looks set to increase scrutiny of SoftBank Group Corp. investments, and possibly drive its share price to Masayoshi Son’s pain point.

The US tech lender’s failure has fueled investor concern over the exposure to startup firms in the SoftBank Vision Funds. SoftBank shares have plunged 13% in four sessions to below 5,000 yen and are nearing a level that some see as Son’s threshold for announcing a buyback.

The SVB crisis has trained a spotlight on private tech investments, especially following a flight from highly valued stocks as the Federal Reserve started tightening last year. While SoftBank said it expects almost no impact from the US lender’s collapse, few investors think it will emerge unscathed.

SVB Crisis Exposes Lurking Systemic Risk of Tech Money Machine

“Startups’ funding conditions were getting tougher and the window for IPOs was narrowing even before SVB’s failure,” said Tetsuro Ii, chief executive at Commons Asset Management Inc. “One thing that is certain is that things will get worse.”

SoftBank may have to mark down the value of private companies it has invested in. That’s on top of the slide in the company’s publicly traded investments, most notably Alibaba Group Holding Ltd., whose shares are down 30% from a January high amid a selloff in Chinese stocks. SoftBank declined to comment for this article.

That will not go down well with investors after losses that have helped drive SoftBank down 30% from a November peak. The company has posted a cumulative net loss of about $22 billion over the past four quarters amid declines in portfolio holdings including WeWork Inc.

SVB Collapse Trains Spotlight on Softbank’s Startup Financing

SoftBank’s tumble has driven expectations of a share repurchase among some observers. Amir Anvarzadeh, a strategist at Asymmetric Advisors Ptd., notes that the stock is approaching 4,800 yen, “where Son tends to hit the panic button and unveil more buybacks.”

The shares are trading at a discount to net asset value of 38%, and Son could make a repurchase if that expands to 50%, Oliver Matthew, an analyst at CLSA Securities Japan Co. wrote in a report Tuesday. Matthew cut his price target on SoftBank 27% to 5,700 yen on lower values for private companies.

The market is still waiting to see the full extent of the damage to the tech sector, and what the impact on SoftBank will be. The latest tech valuation rethink could wind up lowering the amount the company can raise in the IPO of its Arm Ltd. chip unit, according to Bloomberg Intelligence.

SVB’s collapse also “could be the trigger that convinces SoftBank to raise cash by selling Alibaba shares, as it positions itself to backstop some of its startups from any spillover effect,” BI analysts Marvin Lo and Chris Muckensturm wrote in a note. “Such a step would probably diminish prospects of a share buyback.”

Tech Chart of the Day

Meta Platforms Inc. has risen 61% in 2023, which the Facebook parent company is touting as a “year of efficiency” in an effort to improve its financial performance and achieve longer-term goals. Meta on Tuesday closed above $500 billion in market value for the first time since June, after it said it plans to cut about 10,000 jobs and close about 5,000 additional open roles in its second major round of cuts in the past six months. At least a dozen analysts raised their price targets on the stock after the announcement.