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(Bloomberg) – The founder of SoftBank Group Corp., Masayoshi Son, is starting to see the benefits of his huge investments in technology, as well as the thoroughness of money-making in Saudi Arabia.
SoftBank reported a profit of 706 billion yen ($ 6.2 billion) in the second quarter, far exceeding analysts' estimates, thanks to multi-billion dollar gains from its many deals. Yet, at a post-profit briefing in Tokyo, Son has also been confronted with many questions about his relationship with Saudi Arabia, the largest investor in his $ 100 billion Vision Fund. .
His is turning SoftBank from a telecommunications operator into a technology investment company. Its investments generated a profit of 393 billion yen during the quarter, more than all other activities. The company cited rising valuations from Indian online hotel start-up OYO Rooms and graphics card maker Nvidia Corp.
"The Vision Fund posts profits worthy of SoftBank 2.0," said Son at a briefing in Tokyo. "Next year, I think not only will we surpass these results, but we will even be able to generate operating profit on a level never reached by Japan."
Key ideas
SoftBank reported a profit higher than the highest analyst estimates established by Bloomberg. The increase in profits was fueled by gains from investments in technology companies. His son proactively investigated the controversy surrounding the murder of a Saudi journalist and his company's relationship with the kingdom's government. However, he said that SoftBank would proceed with an IPO for its mobile phone business in Japan and promised to maintain its profits by reducing its costs.
SoftBank has been criticized for its relations with Saudi Arabia following the murder of government critic Jamal Khashoggi by Saudi agents. The kingdom has paid $ 45 billion to the Vision Fund, his son has forged personal ties with the Saudi Crown Prince Mohammed bin Salman, whose associates were allegedly involved in the murder.
His son began his press conference in Tokyo by tackling the murder, his first public comments on the incident. He said he lobbied the Saudis to go to the bottom of the Khashoggi massacres and hold the perpetrators accountable. However, he said that SoftBank would continue to use Saudi money for investment purposes because it has an obligation to help the country diversify its economy.
"It's a terrible tragedy that should not have happened," he said. "On the other hand, we accepted an investment from Saudi citizens. This is a significant investment for Saudi Arabia's economic diversification, so that its economy no longer depends solely on crude oil. We can not turn our backs on the Saudi people. "
Pro's proactive comments did not end the check. He was confronted with several questions about Saudi relations and about the possible implications of the investigation.
Regarding the financial results, they showed that forecasting contributions from the Vision Fund on a quarterly basis remains a challenge for investors and analysts. The fund benefited as its value in Oyo doubled to $ 200 million, while Nvidia's stock rose 19% in the last quarter. SoftBank also posted a surprise profit at Sprint Corp., the US mobile operator it plans to sell.
"The earnings figures are extraordinary," said Mana Nakazora, senior credit analyst at BNP Paribas SA in Tokyo. "Accounting procedures may not help, but it is increasingly difficult to understand where the profits are coming from."
His son then explained that his Vision Fund was capitalizing on a wave of innovative companies in the field of technology. The fund has supported 60 unicorns – startups worth $ 1 billion or more – over the past two years, he said. He then took the time to introduce some of the promising startups of his portfolio. He joked that he did not have time to talk about all the strong businesses.
Controversial links between SoftBank and the Saudi Crown Prince: QuickTake
SoftBank aims to raise funds to continue investing in technology startups. The company is currently planning an IPO for its national telecommunications business, which could yield 3 trillion yen. The offer could be the largest ever – with around 30 percent of the capital expected to be listed on the Tokyo Stock Exchange on December 19, experts said last month.
However, the projects were challenged after NTT Docomo Inc., Japan's largest mobile operator, announced a 40 percent rate cut and a 400 billion yen "return" to customers. This caused a massive selloff between the country's three major mobile operators, who lost a total of $ 34 billion the day after the announcement.
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Son said the competition would not hurt the profits of his business. He said SoftBank aimed to reduce costs by reducing the wireless workforce by about 40%, mainly by introducing automation technology. Some employees will be reassigned to other parts of SoftBank.
"I can hire me here so that the profits and earnings of the mobile business continue to grow," said Son.
SoftBank shares have jumped 29% since the beginning of the year to their peak in late September, but they have given up all these gains since the new and declining technology stocks.
His son was also questioned as to whether the Saudi relationship had prompted startups to say they would not accept Saudi money. He responded by saying that he knew no case – and there was clear evidence to the contrary. One of the questions that he asked in Tokyo came from a Brazilian entrepreneur who wanted to know if Son would be interested in knowing more about his country – and about his startup in fintech.
"We are always open," said Son with a smile.
– With the help of Yuki Furukawa and Yuji Nakamura.
To contact the reporter about this story: Pavel Alpeyev in Tokyo at [email protected]
To contact the editors responsible for this story: Robert Fenner at [email protected], Peter Elstrom
For more articles like this, go to bloomberg.com
© 2018 Bloomberg L.P.
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