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The Wall Street Journal Interactive Edition -- September 5, 2000
Softbank Reaches for Its Star
Exploring the Internet Frontier
By ROBERT A. GUTH
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Optimism over the outlook for Softbank's share price is picking up in Tokyo, as some analysts are learning how to cope with a company that has a hyperactive investment philosophy, a 300-year business plan and a corporate organizational chart that looks increasingly like the Milky Way.
But even the most bullish analysts admit that big gains in Softbank's share price may be far in the future.
The Tokyo-based software distributor-cum-Internet investor has had a rocky year. Its share price Monday was down 1.4% to close at 13,750 yen ($129) and is way off its peak of over 60,000 yen in February. Once the darling of investors seeking Japanese Internet stocks, Softbank is a behemoth that many analysts speculate even its founder and chairman Masayoshi Son can't fully grasp.
Writing the Next Chapter
"This company is a nightmare to value," says Thomas Rodes, an analyst at Nikko Salomon Smith Barney Ltd. in Tokyo. Mr. Son is "making it up as he goes along, and we as analysts are making it up as we go along," he says.
One of the key challenges for analysts stems from Softbank's vast number of unlisted holdings. In the past year Softbank has ballooned into a massive holding company housing 450 Internet-related companies. While it has stakes in a small number of publicly traded standouts, like Yahoo! and E*Trade Group, most of the companies in its portfolio are unprofitable and unlisted, making it hard for analysts to value. What is more, big questions remain over the recent purchase of Nippon Credit Bank by a Softbank-led consortium. The bank, which the Japanese government took over in 1998 after it collapsed under the weight of bad loans, re-opened its doors Monday.
Still, Mr. Rodes and other analysts in Tokyo are putting measured faith back in Mr. Son's vision. After downgrading Softbank in June, Nikko Salomon on Aug. 25 upgraded the stock, setting an 18-month target price at 17,000 yen. Meanwhile, Jardine Fleming Securities (Asia) Ltd. has a buy rating on the company and said that in part, the growing value of Softbank's Japanese holdings will gradually counterbalance its heavy reliance on its main investment, namely Yahoo, of which Softbank holds just over 20%.
Mr. Rodes says he is happy about Softbank's cancellation of plans to list intermediate holding companies, a move he says would have killed investors' interest in holding Softbank stock. In addition, Mr. Rodes says some downward pressure on Soft bank's stock has been lifted by the completion of the NCB purchase, which required government approval. With the acquisition cleared, Softbank can now focus on getting the bank back on its feet, Mr. Rodes reasons.
Moody's Investors Service Inc. on Monday raised its rating on NCB's financial strength one notch to an "E-plus" from an E, the lowest rating Moody's can give a bank.
Despite the increased optimism, many analysts still aren't clear on how exactly Softbank hopes to use its new bank. Benjamin Wedmore, an analyst at HSBC Securities (Japan) Ltd. who earlier this year wrote a long, scathing report urging investors to sell the stock, argues that Softbank needs to disclose more information on its investments and in particular on the direction of the bank.
"I'm still disappointed to not see one sheet of a detailed strategic intention" on NCB, he said. And despite success with Yahoo and the Japan unit of Cisco Systems Inc., most of Softbank's investments are "thin."
Mr. Wedmore put the stock back on hold briefly, but last week again downgraded it from hold to a sell. He says that in coming months the share price will remain very volatile and could trade in a range between 6,000 yen and 18,000 yen.
Pushing the Accelerator
All this doesn't seem to bother Mr. Son, who says he has no intention of slowing down what has been one of the most breathtaking venture investment sprees ever. "Speed is of the essence," Mr. Son said in a meeting with reporters on Friday.
Mr. Son said that he is receiving 1,000 business plans every month from companies seeking investment, and expects to reach about three new agreements monthly for the foreseeable future. He is pushing his Internet empire into China and is currently focusing on business-to-business-related Internet partnerships. The goal? Grab relationships with the best and brightest start-ups before anyone else does.
Case in point: Last Thursday in Tokyo Mr. Son says he gave a Silicon Valley-based start-up 30 minutes to pitch him a deal. He liked it, canceled his dinner plans and by around 11 p.m. had reached a rough agreement with the company. Within an hour or so, the two companies had e-mailed a draft of an agreement to the U.S., he said. There, lawyers went through it and by the next morning had sent it back with fixes.
At breakfast in Tokyo, Mr. Son and the company's executives shook hands on the deal. Mr. Son says he expects to complete the deal later this month and within a couple of months will announce joint ventures with the company in Japan, South Korea and China. He won't identify the company but says it has a market capitalization of $10 billion and provides technology and services for business-to-business exchanges.
Mr. Son insists that despite his haste he is making quality investments, and relies on executives at subordinate holding companies within the Softbank umbrella to make investment decisions.
Pointing to the current value of Softbank's listed holdings, that stand at about $30 billion, Mr. Son says investors need to look at his track record. "Two years ago it was two billion dollars, three years ago it was less than one billion dollars," he says. "If you look at the long term trend it's still growing and growing."
Write to Robert A. Guth at rob.guth@wsj.com |
