SoftBank Group Corporation announced a share buyback worth up to 500 billion yen ($3.4 billion).
The mentioned decision by one of Japan’s largest business structures still leaves the company’s founder Masayoshi Son with significant amounts of cash, which he intends to use to implement plans for active investment. It is worth noting that his paradigm of financial injections provides for a high degree of intensity and a significant bet on startups. The corresponding concept of action is risky in a certain sense. The example of SoftBank Group confirms this thesis. Not all bets of the business giant turned out to be positive in terms of the final result. At the same time, basic economic principles stipulate that not every startup will be able to become successful and gain its market share. In this case, the beneficiary will be a large company that will bet on the firm, which is at an early stage of existence and can offer consumers products with qualities superior to offers of competitors.
SoftBank Group, founded in 1981 and headquartered in Tokyo’s Minato City district, has long had the status of a major technology investor. The relevant activity is promising but contains significant risks. The business giant intends to buy back up to 6.8% of its free-floating shares by August 7 next year. The corresponding statement was made by the company after activist investor Elliott Investment Management acquired a significant stake in SoftBank Group in the current year and demanded a $15 billion buyback. The company’s chief financial officer Yoshimitsu Goto stated that the mentioned position of the activist investor was not a factor impacting the decision regarding securities.
SoftBank Group is currently preparing for expenses. The corresponding financial expectations are related to the fact that Masayoshi Son intends to invest significant amounts of funds in the artificial intelligence industry and the semiconductor development and production area. It is worth noting that the business giant has managed to accumulate large amounts of money. The value of the company’s assets showed growth against the background of the rising of dynamic of shares of its subsidiary Arm Holdings Plc, which specializes in chip development. At the same time, the business giant still has debts.
Yoshimitsu Goto says that the time has come for the SoftBank Group’s concept of action to change and transform into a more aggressive strategy. In the context of stating the relevant opinion, he separately noted that currently, the value of the net assets of the business giant is at around 35.3 trillion yen, which is the result of an increase in the corresponding indicator. The loan-to-asset ratio decreased to 7.8%. This figure is below the historical target of 25%.
SoftBank Group is interested in the area of artificial intelligence chips. The business giant also intends to make financial injections into data centers. Another direction of SoftBank Group’s investment interest is the robotics area. It is worth noting that all the listed spheres of activity are promising and contain significant potential. Chips within the current configuration of the global technology space are what can be described as a kind of basic component of critical importance. The corresponding products, for example, are increasingly used in the automotive industry. Chips are also necessary for training and ensuring the process of subsequent functioning of artificial intelligence systems. Data centers are becoming more and more demanded functional objects against the background of the development of AI, the scaling process of digitalization at the global level, and the expansion and evolution of the Internet space. Robots are so far what corresponds to the concept of a distant technological perspective. At the same time, in the context of progressive development in the material environment and the production plane, humanity is gradually approaching the era of anthropomorphic machines. This version of the future of human civilization is realistic, but still not guaranteed. At the same time, the age of robots has long been what can be called the futurological vision of mankind. For example, in 1990, a collection of short prose by Isaac Asimov about intelligent machines called Robot Visions was released. At the same time, the idea of automatic devices was formulated in the intellectual space of ancient civilizations, including Ptolemaic Egypt, Ancient China, and Ancient Egypt. Currently, robots already exist, but so far these machines have not become what can be conditionally described as a digital analog of a human being, which is full-fledged in terms of cognitive abilities. Artificial intelligence may make robots a kind of functional unit capable of large-scale mental activity, including awareness of the world around them and analysis of the principles of the existence of matter of the being.
Yoshimitsu Goto says that Arm and its chip development activities will be at the center of the business giant’s planned investments in advanced segments of the technology sector. According to him, the company currently does not function as a structure focused primarily on financial injections. He stated that SoftBank Group is committed to implementing artificial super-intelligence. Yoshimitsu Goto also noted that as part of the movement towards the corresponding goal, the business giant will rely on a solid financial base.
In June, Masayoshi Son announced the forecast during a rare public speech, according to which, in ten years, the functioning of such a configuration of artificial intelligence will be launched, which will be 10,000 times superior to the human mind in terms of cognitive abilities. In his opinion, this version of AI for humanity will mean a new level of technological progress, which at the same time will not provide for the need to make fundamental adjustments to the usual way of life in the context of its everyday dimension and change the global way of being in a larger existential sense.
In the past, Masayoshi Son has used the practice of share buyback. These decisions were aimed at maintaining the exchange rate of the business giant’s securities. Masayoshi Son performed the appropriate actions when he was sure that this strategy would bring benefits. During the coronavirus pandemic, when the value of the business giant’s shares showed a significant drop, SoftBank Group spent about 4 trillion yen on securities buyback.
Astris Advisory analyst Kirk Boodry says that share buybacks may ease the pressure to take any action on shareholder returns. According to the expert, the buyback of securities worth 500 billion yen should be enough to stimulate some excitement. Kirk Boodry says that in this case, the result will be achieved, even if the indicator is lower than the previous figures and what investors would like to see. The expert also stated that the amount of 500 billion yen is acceptable even with an accelerated investment program in the artificial intelligence industry.
SoftBank Group found itself in the territory of the negative impact of global market volatility, which began last week and peaked at the beginning of the current week. On Monday, August 5, the value of the business giant’s shares showed a drop, which turned out to be the strongest since 1998. The next day, the company’s securities recovered most of the losses. On Wednesday, August 7, the value of the business giant’s shares continued to be on an upward trajectory. At the same time, the SoftBank Group’s market capitalization is still more than $40 billion below the record high reached in July. It is worth noting that the mentioned market volatility is partly due to the disappointing earnings figures of technology giants, which turned out to be worse than preliminary expectations and provoked investor fears that the benefits of financial injections into the artificial intelligence industry will not be fast, and that there is still no clear vision of what the AI configurations will be, in particular including in terms of their capabilities, at intermediate stages of the evolution of digital thinking. At the same time, the specified concerns do not negate the significant potential of machine intelligence. Among the tech companies that have released disappointing data, for example, Intel. The revenue of this firm for the second quarter of the current year was fixed at $12.83 billion. At the same time, the LSEG consensus forecast provided that this figure would amount to $12.94 billion.
SoftBank Group on Wednesday also announced that its loss for the second quarter of the current year was recorded at 174.28 billion yen. During the same period in 2023, the company recorded a loss of 477.62 billion yen. The weakening of the yen and the loss of Vision Fund assets outweighed the growth in revenue from royalties and licensing fees of the unit chip Arm.
SoftBank Group still faces the burden of hundreds of loss-making startups. This reality, within which a business giant exists, is the result of a massive bet on firms at an early stage. Interaction with startups, based on a quantitative indicator as a kind of goal, inevitably contains the risks of materializing the mentioned burden. Unprofitable startups are listed on the balance sheet of the flagship Vision Fund. Most of the relevant portfolio consists of companies that seek to navigate the rapidly changing technological landscape.
The Vision Fund segment lost 204.3 billion yen with a profit of 61 billion yen. This result is a consequence of a decrease in the value of shares of portfolio companies listed on the stock exchange, including AutoStore Holdings Ltd. and Symbotic Inc. Also, the impact factor was a decrease in the value of securities of startups in which SoftBank Group invested, but which were not included in the list.
It is worth noting that the business giant’s ability to raise additional financing has increased dramatically as a result of the initial public offering of Arm shares last year. The company’s profit improved against the background of the next sale of securities of T-Mobile US Inc. to Deutsche Telekom AG.
The SoftBank Group’s share buyback program worth up to 500 billion yen and the increasing pressure on technology companies’ securities may provoke a decrease in the loan-to-value ratio and a decrease in investment opportunities under its ratings. The corresponding opinion is shared by economist Sharon Chen.
The business giant’s net debt, except for prepaid forward contracts, reached $40 billion in the first quarter of the fiscal year, which is a slight increase in the indicator. The value of Arm shares has fallen by about 30% since July. Against the background of the corresponding dynamic, the value of the SoftBank Group’s portfolio decreased by $47 billion.
It is worth noting that back in February, the media reported on Masayoshi Son’s readiness for decisive action. He currently has intentions to implement a plan to invest about $100 billion in the area of development and production of chips needed for artificial intelligence systems. Last month, the business giant became the owner of semiconductor startup Graphcore Ltd. There is still no information about the cost of this deal. The mentioned startup specializes in the implementation of semiconductor development activities for running artificial intelligence programs. It is difficult for this company to move towards gaining its own share in the chip market against the background of the triumph of Nvidia, the main beneficiary of the so-called artificial intelligence boom. This summer, the mentioned market leader’s market capitalization reached the historically significant $3 trillion mark.
Masayoshi Son has been increasingly betting on the SoftBank Group lately, rather than on the Vision Fund, which was founded seven years ago. The investments of the Vision Fund amounted to about $600 million. At the same time, approximately $1.2 billion was received directly from SoftBank Group. Over the past few quarters, the Vision Fund has been selling off its assets. Parallel to this process, there was a slowdown in the pace of investment. Recently, the Vision Fund has been increasingly engaged in consulting.
Yoshimitsu Goto says that the business giant has learned a lot from its investment mistakes. According to him, the knowledge gained will be used to solve the next serious task.
Returning to the financial performance of the business giant, it is worth noting that SoftBank Group’s net sales for April-June of the current year amounted to 1.7 trillion yen. This indicator increased by 9.3% compared to the result recorded for the same period of 2023.
The net profit of the business giant for the past quarter was recorded at 10.5 billion yen.
The latest statements about SoftBank Group’s goals indicate that the company is moving towards becoming a major player in the technology sector and moving beyond the status of a source of financing for firms engaged in the development and production of advanced products.
