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Abu Dhabi, UAEFriday 16 November 2018

SoftBank earnings come in far above estimates

Operating profit rose 78 per cent to ¥706 billion (Dh22.76bn) in the three months ended September, compared with the ¥373bn average analysts' estimates

Masayoshi Son, CEO of Japan's SoftBank Group, which gained from multibillion-dollar gains on a handful of his many deals. Bloomberg
Masayoshi Son, CEO of Japan's SoftBank Group, which gained from multibillion-dollar gains on a handful of his many deals. Bloomberg

SoftBank Group founder Masayoshi Son is starting to reap the benefits of his enormous technology investments.

The lender reported second-quarter profit that far exceeded the highest analyst estimate largely because of multibillion-dollar gains on a handful of his many deals. Operating profit rose 78 per cent to ¥706 billion (Dh22.76bn) in the three months ended September, compared with the ¥373bn average of analysts’ estimates compiled by Bloomberg.

Mr Son has been restructuring SoftBank from primarily a telecommunications operator into a technology investment company with his $100bn Vision Fund. Those investments contributed ¥393bn to profit in the quarter, more than all the other businesses combined. The company cited increased valuations of India’s online hotel start-up Oyo Rooms and graphics card maker Nvidia among its gains.

“The Vision Fund is showing profits worthy of SoftBank 2.0,” Mr Son said at a briefing in Tokyo. “Next year, I believe we will not only exceed these results, but may even deliver an operating profit on the level that Japan has never experienced before.”

The Vision Fund benefited as its stake in Oyo doubled in value to about $200 million since July 2015, while the shares of Nvidia rose 19 per cent last quarter. SoftBank also benefited from a surprise profit at Sprint, the US wireless operator that it is looking to sell.

"The earnings numbers themselves are extraordinary,” said Mana Nakazora, chief credit analyst in Tokyo at BNP Paribas. "Perhaps it can’t be helped due to accounting procedures, but it is becoming harder to understand where the profits are coming from."

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SoftBank shares climbed 29 per cent from the start of the year through their peak in late September, but have since given up all of those gains amid negative news and a decline in technology stocks. Saudi Arabia is the largest investor in the Vision Fund, contributing $45bn, while Mr Son has forged personal ties to Saudi Crown Prince Mohammed bin Salman.

Mr Son said his Vision Fund is capitalising on a surge of innovative technology companies. The fund has backed 60 unicorns - start-ups worth $1bn or more - in the past two years. SoftBank is aiming to raise capital to be able to keep making investments in tech start-ups. The company is planning an IPO for its domestic telecom operations, which may raise ¥3 trillion. It has the potential to be the largest such offering ever - with about 30 per cent of the equity to be listed on the Tokyo Stock Exchange on December 19, sources said last month.

But the plans have come into question after NTT Docomo, Japan’s biggest mobile carrier, said it may cut rates 40 per cent and “return” ¥400bn to customers. That sparked a sell-off among the country’s three major wireless operators, which lost a combined $34 billion the day following the announcement.

Mr Son said the competition won’t hurt his company’s profits.

“I can make a commitment right here that profit and revenue in the mobile business will continue to grow,” he said, citing efforts at cutting costs. He said the introduction of automation will help reduce staff requirements in the telecom operations by 40 per cent.

Sprint last week posted net income of $196m and raised its full-year profit guidance. SoftBank is in the process of selling Sprint to T-Mobile US, a $26.5bn takeover that would combine the third and fourth-biggest wireless providers in the US. Despite the upbeat earnings, the Overland Park, Kansas-based company has argued that without the T-Mobile deal, it faces dire financial conditions.