Softbank (SFTBY) Stock Plunges on a Record Loss, Morgan Stanley Reiterates Underweight

May 12, 2022 6:43 AM EDT
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SoftBank Group (OTC: SFTBY) reported a record $26.6 billion loss for its venture capital (VC) fund Vision Fund due to rising interest rates and geopolitical tensions which have weighed on high-growth tech stocks.

Revenue came in at ¥1,517 billion while operating profit was reported at ¥165 billion.

The record loss comes a year after SoftBank reported a record annual profit, which placed the group’s strategy of focusing on riskier, high-growth stocks under tighter scrutiny.

The reported loss raised concerns among investors and shook their confidence Stocks like the South Korean e-commerce firm Coupang (NYSE: CPNG) and ride-hailing giants DiDi Global (NASDAQ: DIDI) have all sharply declined in the first quarter.

Masayoshi Son, founder and CEO of SoftBank Group, and the person behind the group’s investment strategy that focused on high-growth stocks said SoftBank should adopt a more defensive stance by bolstering its cash position through asset monetization and more rigorous investment criteria.

SoftBank managed to slash its risk exposure in China, Son said, where tech companies have sustained heavy hits from Bejing’s regulatory clampdown. He added that there are still “great companies” in China but the group wanted to limit the risk by investing in smaller amounts.

SoftBank invested in roughly 450 companies through its Vision Fund investment arm, with 43 of these investments being made in the fourth quarter. The group decided to slow down the investing pace in this quarter as private prices delay the fall in public markets.

Morgan Stanley analyst Tetsuro Tsusaka reiterated an Underweight rating following a “tough profit guidance.”

"Profit plan calls for tough drop in organic profits; negative surprise. Sharp decline in organic profits, continued fall in revenues from ARPU drop, preference within the telecom sector is low,” Tsusaka wrote to clients.

SoftBank stock price closed over 8% lower in Tokyo today.

By Senad Karaahmetovic

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Morgan Stanley, Senad Karaahmetovic