softbank - did a report nov. 4, the stock has been moving up most of the year...it's a global player with a diverse internet portfolio un-rivalled by any other firm:
e-harmon.com's
NetStock! by Steve Harmon
ceo of e-harmon.com
e-harmon.com
the internet investment source
___________________________
1999.11.04
Ichi Internet:
Softbank Value? Whole Worth More Than Parts
Ichi ban.com, welcome to Softbank, the global Internet company whose
portfolio includes Yahoo, E*Trade and dozens more from Silicon Valley
to Tokyo. The big question raging all year has been what's Softbank
really worth?
I can get to about $55 billion in my estimated intrinsic value for
Softbank's entire operation and portfolio, a premium to its market cap
today on the Tokyo exchange (9984).
While difficult to trade and track because of its relatively-high
price per share and non-U.S. base, I believe despite its recent runup
and downturn Softbank still represents one of the better ways to play
the Internet globally. The downturn came as a result of a critical
book about Softbank published in Japan.
Much ado has been made about Softbank in various circles the past 12
months. I recall 3 years ago conventional wisdom said the
Japanese-based technology and investor firm was going to implode on
sheer range of its Internet investments.
Its investment of $105 million for one-third of Yahoo at the Web
network's IPO was seen as laughable.
At the time I noted Softbank's moves and thought either Softbank would
win really big or lose really big.
The investment in Yahoo was a good sign since I was a believer in its
model and prospects. In fact I told an entrepreneur in 1997 if
Softbank didn't invest in them then something was definitely wrong
since it was putting cash on everything that moved in the Net space.
Still is, sort of.
There was no in between for this sort of shotgun investing. Put bets
on all tables. In the ensuing period Softbank (and its related
affiliates or subsidiaries) has made more than 75 Internet investments
in the U.S. and Asia in firms including E*TRADE, Ziff-Davis (ZDNet),
Yahoo Japan, E*Trade Japan, and just about everything else .com Japan
for its U.S. counterpart.
Here's a snapshot of some of the better-known investments:
Company Ticker Percent owned Value
E*trade EGRP 27% $ 1,728
MessageMedia MESG 24% $ 145
USWeb USWB 70% $ 2,027
Yahoo YHOO 27% $ 12,614
Ziff-Davis ZD 70% $ 1,211
ZDNet ZDZ 85% $ 1,327
E-Loan EELN 9% $ 66
Insweb INSW 28.30% $ 159
Sub total $ 19,276
NASD Japan
GeoCities Japan
ONSALE Japan
Broadcast.com Japan
Yahoo Japan
CarPoint Japan
Misc. Japanese units Est. total $ 20,000
Venture portfolio $ 15,000
Management premium/barrier to entry
TOTAL ESTIMATED SOFTBANK VALUE $ 54,276
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¸ 1999/2000 e-harmon.com, Inc. May be shared 100% intact
Some of the key value drivers we believe are sheer girth, diversity of
investments in the Internet, geographical and sector investments,
Softbank's capital availability, current value of its portfolio, and
perhaps greatest of all, Softbank's established positions in key
Internet value points.
Specifically, we would place a value on Softbank's kereitsu reach
across ecommerce (E*Trade, E-Loan and private investments), content
(Yahoo and ZDNet), community (GeoCities-Yahoo and GeoCities Japan),
communication (MessageMedia, Yahoo, broadcast.com Japan),
business-to-business (NASD Japan) and the dozens of startups at
various stages.
In other words, the combination of the portfolio should command a
premium to the underlying assets based on the built-in leverage of the
portfolio network as a whole. The whole being greater than the parts.
Translated that means that it will be extremely difficult if not
impossible for a rival to match Softbank's reach and influence in the
Internet, especially in Japan.
Is Softbank perfect as an investor? No. Quite honestly we believe it
made a big mistake buying Kingston and Ziff Davis. It bought into
non-Internet assets at a time when Internet was the better choice. At
the time of the Kingston acquisition we were dumbfounded as to the
benefit of the chip maker with Softbank.
Trade magazine publishing giant Ziff Davis and tech trade show king
COMDEX had similar reactions from us as being weak investments,
although were a little closer related to Internet.
While it is difficult to value privately-held assets we place an
aggressive 10x multiple on Softbank's venture capital (vs. a 15x
historical) and add in a market leader premium to arrive at our
estimated fair value of $55 billion. Underscoring this valuation is
the fact that a dollar (or yen) in today's Internet spent to build
marketshare we believe worth 2x or 3x the cost it will likely be next
year. Driving value is the notion that a dollar/yen invested today
goes farther than one invested tomorrow. Was true in 1996 when
Softbank bought 1/3 of Yahoo for what looks like peanuts and remains
true today.
That implies that invested capital buys opportunity today at a fairly
steep discount to tomorrow's market. The cost of competition drives
later entrants in any Internet market to pay up to participate. In
short, Softbank (and others investing wisely in the Internet) pay a
fraction of the future value of the markets and segments they want to
own.
NASD Japan, for example, the new stock exchange Softbank announced
with NASD. Having locked up NASD for Japan prevents rivals from moving
with NASD in that growing theater. Yahoo and GeoCities provide two
clear earlier examples. Once Softbank owned a third of Yahoo that
percentage ownership alone was a barrier to entry for rival venture
investors owning a large slice of Yahoo.
So rather than value Softbank as an old-fashioned earnings play we
prefer to value it as a portfolio of global Internet companies that
continues to invest at paces un-rivaled by any single firm to date.
Ichi ban in the dot-com space anyone?
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