What’s going on?
SoftBank’s latest quarterly update on Tuesday suggested the giant Japanese tech conglomerate probably has to shrink in order to grow.
What does this mean?
SoftBank’s profit was 40% lower last quarter than a year ago, thanks in part to the large stakes it owns in Chinese companies. The Chinese government has been cracking down on local firms with US-listed shares – and the effect on Didi’s share price, for instance, will have wiped out any windfall SoftBank got from the ride-hailing company going public in the first place.
Analysts didn’t know quite what to expect from SoftBank’s earnings: some correctly predicted some profit last quarter, while others had forecast a narrow loss. But all were agreed on the importance of share buybacks. With its record buyback program coming to an end, Softbank’s investors were hoping for another, especially given the stock’s recent weakness. The company, however, left them hanging.
Why should I care?
For markets: Selling signals may worry Big Tech backers.
SoftBank sold off most of its big US tech investments last quarter: it ditched $3.1 billion worth of Facebook, $1 billion of Microsoft, $575 million of Alphabet, and $382 million of Netflix shares, but largely stuck to its Amazon stock. What with bumper buybacks and racking up debt to fund new investments, SoftBank may have needed the cash to shore up its bank balance – but its actions may still give other investors pause for thought.
For you personally: SoftBank cools on China – for now.
Perhaps unsurprisingly, SoftBank’s pausing its investments in the Chinese startup scene until the regulatory situation becomes clearer. Yet the company remains positive on China’s prospects in the long run. That’s a useful reminder that taking a long-term view doesn’t necessarily mean suffering through short-term hardship: ducking out of something for a while can simply let you buy back in at a more opportune moment.