There seems to be a constant stream of pr and publicity on Softbank. Most of it is positive. Even some of the critical articles seem to show some grudging admiration for Son and his operation. Such a strong PR effort makes me nervous about a Company.
Issued: May 24 ,1999
Softbank is bullish on Internet plays
Venture-capital strategy based on time lag with U.S. industry
Softbank Corp. is consolidating its position as one of Japan's leading venture-capital providers by making the most of the difference in maturity between the Japanese and U.S. Internet industries. At the same time, its bottom line is becoming increasingly dependent on skyrocketing prices of Internet issues on U.S. markets.
Softbank averted a consolidated net loss in the fiscal year that ended in March by selling part of its stake in leading U.S. search engine Yahoo! Inc. The aggregate market value of Internet-related shares owned by the Tokyo-based company topped 2 trillion yen ($16 billion).
"The pretax loss is due to our leading-edge investments as part of our Internet strategy. The aggregate market value of Internet business will surpass that of the personal-computer industry over 10 years," said Softbank President Masayoshi Son on May 19 in reporting fiscal 1998 results.
Split personality
Softbank has two faces - one as a company engaged in computer-magazine publishing and software distribution; the other as a venture-capital provider for Internet-related start-ups.
Its profits from the publication and software-distribution businesses are not growing smoothly. Without the share sale, the company could not have avoided a consolidated net loss. However, its performance as a venture-capital provider is far better.
The aggregate market value of the shares Softbank held as of May 19 was 2.06 trillion yen, with unrealized profits at 1.82 trillion yen. It is projected to rank from third to fifth among listed companies in latent profits on shareholdings.
The company's stakes in six U.S. Internet-related venture businesses account for 85% of the aggregate market value of its shareholdings and 83% of its unrealized capital profit.
The Softbank group acquired shares in Yahoo! for only 300 million yen in November 1995, before the company went public. The aggregate value of the shares has ballooned to 1.08 trillion yen.
Softbank's strategy of exploiting the time lag between the Japanese and American Internet industries is well-evolved by now. The company invests in a promising Internet-related start-up in the U.S. before it goes public. It makes a profit on the sale of part of the shares after the initial public offering and aims for a rise in the stock price of Softbank itself on investor expectations of unrealized profits in the U.S.
The company then boosts its fund-raising capability through the higher stock price. At that point, Softbank helps the new Internet company - which has taken off in the U.S. by this time - to set up business in Japan, with a view to publicly offering its stock here.
Softbank stock closed at 15,750 yen per share May 21. The issue topped 25,000 yen at one point in 1994 on the over-the-counter market. After a sharp plunge toward the end of 1997, the issue regained popularity after listing on the first section of the Tokyo Stock Exchange in January 1998 and is now up about 300% from the 3,800 yen level at the time of listing.
Referring to U.S. Internet issues, Son said, "The uptrend will stay firm over the longer term." However, if stocks of U.S. Internet companies collapse, as many market observers predict they will, Softbank will take a very big hit indeed.
The company relies on a "latent management" strategy built on latent profits on its shareholdings. It will soon need those profits to cover the redemption of 219.6 billion yen in outstanding bonds coming up in 2002, because it will take some time for its Internet ventures to start generating significant revenues.
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