The race is on between our 9984's recovery and Nasdaq's collapse.
Here is something that just is in today's Asian Wall Street Journal (may have appeared earlier in US WSJ):
Softbank Struggles for Footing
In Unsteady Tech Stock Terrain
By DOUGLAS APPELL
Staff Reporter of THE WALL STREET JOURNAL
Softbank is facing one of the ultimate trials for an Internet stock: a trading range. And while the Japanese company has many fans, there's no consensus that the investment giant will emerge from that range on the upside.
After a roller-coaster ride that saw its share price surge by more than 2,000% in the 12 months through Feb. 18 before tumbling 60% over the past three months, Softbank should experience a lull in the coming months, analysts predict. After a rebound on the Nasdaq Stock Market Monday, Softbank's shares jumped 3.9% Tuesday to 23,800 yen ($217.39).
Many analysts peg the value of the company's holdings in listed and unlisted Internet ventures at a little over 20,000 yen a share, making it likely that investors will buy the stock if it drifts lower. But unless the Nasdaq Composite Index convincingly breaks out of its recent slump, there's little hope of Softbank's shares posting the dramatic gains that Internet aficionados have grown accustomed to, analysts concede.
Softening Valuation
There's a lack of consensus on Softbank's long-term prospects. This reflects the range of assumptions analysts must make on the outlook both for the start-ups that Softbank invests in and for the stock markets that the company needs in order to cash out. Valuing Softbank "isn't a science, it's an art," says Thomas Rodes, a Tokyo-based analyst with Nikko Salomon Smith Barney.
And the artists are getting tougher. Amid the sharp sell-off in technology shares that started two months ago on the Nasdaq, "people are beginning to question how much of a premium they're willing to give on some of these valuations," says a U.S. fund manager based in Tokyo. Softbank has no earnings, no cash flow and needs to tap regularly into a hot stock market to keep its operations going -- a much dicier proposition now than it was a few months ago, he says.
The fund manager, who values Softbank's holdings at around 20,000 yen a share, says he doesn't currently hold the company's stock in his portfolio.
Mr. Rodes figures the after-tax value of Softbank's global Internet holdings comes to between 21,000-22,000 yen a share, leaving him recommending a "hold" on the stock now. But he says investors should be ready to buy Softbank's shares if they fall, citing the value of the company's stake in global Internet portal leader Yahoo! as a prime attraction.
End of an Era?
Others are even more enthusiastic. Stephen McKeever, a Hong Kong-based Internet analyst with Lehman Brothers, says Softbank has enjoyed solid buying support in recent weeks, reflecting the "unrivaled breadth and depth" of its investments in some of the most promising sectors of the Internet economy. At their current level Softbank shares clearly offer value, he says.
Robert Howe, the chief investment officer at Aimic Investment Management in Tokyo, agrees, calling Softbank "a great company," with the vision to extract synergies out of its stable of Internet ventures. With markets so volatile there may be chances to pick up the shares at lower prices but they're probably already a bit undervalued, he says.
Yuta Sakurai, a Tokyo-based analyst with Nomura Securities, says Softbank should outperform the broader market in Tokyo by between 5% and 15% over the coming six months. Information that the company will release when it announces its latest fiscal-year results in the next week or two could provide the spark to lift Softbank's shares higher, he says. Mr. Sakurai says investors will be looking for more disclosure about Softbank's venture-capital funds, as well as its plans to purchase Nippon Credit Bank.
On the other side of the Internet divide are analysts and investors who say Softbank still has a lot to prove. Taku Kumazawa, a Tokyo-based analyst with the Wit Capital Group, argues that the recent share-price plunges of Internet investment names such as Softbank and Hikari Tsushin have ended a period when those companies served as "brands" that could lend credibility to the start-ups they invested in -- a sort of "Good Housekeeping" seal of approval. From now on Softbank must prove that it can help the companies it invests in to develop quickly into profitable winners -- but there's little evidence that it has the management-incentive structure to facilitate that process, he says. Mr. Kumazawa sees more likelihood that Softbank's shares will head toward 15,000 yen than to 30,000 yen.
Management Concerns
Ben Wedmore, a Tokyo-based analyst with HSBC Securities, agrees, saying Softbank hasn't shown that it can effectively manage the sprawling organization it has become, while its move to diversify further by buying into a bank should be viewed with concern. A value of more than 20,000 yen a share can be justified if the current valuation of Softbank's Yahoo crown jewels can be maintained, but that's a big "if," he says.
Investors are still betting that the climate of the past five years, when a few million dollars could buy a hefty stake in a promising company, can continue, but that's wishful thinking, Mr. Wedmore says. Now an Internet investment company is more likely to pay $100 million for 10% of a very risky venture. A more cautious set of assumptions could yield a per-share value for Softbank that's closer to 11,000 yen, he says.
Salomon Smith Barney's Mr. Rodes admits the uncertainties but says that, at current levels, anyone looking to hedge their bets on the Internet sector would probably prefer to hold Softbank's stock.
Write to Douglas Appell at douglas.appell@awsj.com |
