By Phred Dvorak
SoftBank Group Corp. said profit collapsed in the last three months of 2019, as the Japanese technology giant -- under pressure from a major activist investor -- floated the possibility of paring back its ambitions for a planned sequel to the $100 billion Vision Fund.
The company on Wednesday said operating profit fell 99% to Yen2.6 billion ($23.6 million) for the quarter ended Dec. 31 versus the previous year. The sharp drop was largely attributed to continued weakness of the Vision Fund, which was hit by a fall in the share price of ride-hailing giant Uber Technologies Inc., one of its biggest investments.
However, SoftBank said its fortunes had improved since the quarter ended. A rise in Uber's share price has pushed the Vision Fund back into the black, and a judge this week approved a long-delayed merger between its U.S. mobile carrier Sprint Corp. and rival T-Mobile US. Inc.
That decision prompted Sprint's shares to soar Tuesday in U.S. trading, and pushed up SoftBank's stock to close 12% higher Wednesday in Tokyo trading.
SoftBank Chief Executive Masayoshi Son said recent events showed the "tide is turning" on the company's problems. SoftBank has been grappling with a series of high-profile missteps by the Vision Fund, most prominently a multibillion-dollar loss on the parent company of U.S. shared-office company WeWork. The fund stopped making new investments last year, after spending around $80 billion in two years.
Problems at the fund have spooked SoftBank's shareholders as well as potential investors that Mr. Son was hoping would contribute capital to a second Vision Fund even bigger than the first.
SoftBank now has to figure out how to continue financing its ambitious investment plans while pacifying investors like activist Elliott Management Corp., which has amassed a 3% stake in the company and is asking for as much as $20 billion in share buybacks.
Mr. Son said Wednesday one possible measure could be a more modest start to the second fund. SoftBank is considering launching Vision Fund 2 in stages, starting with a smaller bridge fund that might run for one or two years, and that it could finance itself, Mr. Son said at a press conference in Tokyo. That would give the fund time to build a performance record and give investors the confidence to contribute to a fund, he said.
"After some remorseful reflection, I'm now thinking that we ought to shrink the size a bit" of the next fund, said Mr. Son. "After everyone becomes comfortable," SoftBank can officially launch a bigger Vision Fund 2, he said.
His comments come days after The Wall Street Journal reported that SoftBank would likely raise much less than the $108 billion-plus it had hoped for the new fund.
Mr. Son also said that he met representatives from Elliott around two weeks ago, and as SoftBank's biggest shareholder -- he has a 22% stake -- agrees that the company's share price is too low. SoftBank purchased $5.5 billion of its own shares last year, and Mr. Son said SoftBank is happy to consider further buybacks.
But he also said that the timing and amount of any buyback would depend on how much available funds SoftBank has, as well as whether it would be able to issue corporate bonds to help finance a share purchase.
SoftBank is already looking for more independent directors and looking at ways to improve governance and transparency at the Vision Fund, Mr. Son said -- two other demands by Elliott.
One big potential source of funds -- for both investments and share buybacks -- is SoftBank's large stake in Chinese e-commerce giant Alibaba Group Holding Ltd. That stake, which started with a $20 million investment in 2000, is currently worth around $146 billion, more than SoftBank's entire market capitalization.
Some analysts argue that SoftBank should sell part of that stake and use the money to buy back shares; others say the company might have to tap those holdings to raise investment funds if outsiders continue to balk at contributing to a second Vision Fund.
Mr. Son has historically been reluctant to touch the Alibaba stake -- his most successful investment -- since it underpins SoftBank's assets and ensures the company can continue to borrow heavily. On Wednesday, he said he is still loath to sell because he thinks Alibaba will continue to appreciate in value for years yet, and that he wants to keep any share sales to a minimum.
Balancing the demands of shareholders and its investment business will be one of Mr. Son's thorniest problems, said Chris Lane, an analyst at Sanford C. Bernstein who estimates that without outside investors, SoftBank would need to find $25 billion during the next year to keep up the rapid pace of investment it set with the first Vision Fund.
"The biggest issue is: 'I need money to return to shareholders' versus 'I need money to invest,'" he said.
Write to Phred Dvorak at firstname.lastname@example.org