Top Financial News
Wed, 19 May 1999, 8:59am EDT
Softbank Posts Record Group Profit on Gains From Selling Shares in Yahoo!
By Gary Schaefer
Softbank Posts Record Group Net Profit on Stock Sales (Update3)
(Moves up executive's quote and background information to
3rd and 4th paragraphs.)
Tokyo, May 19 (Bloomberg) -- Softbank Corp., one of the
world's biggest investors in Internet companies, reported a
record profit as it booked one-time gains on sales of shares in
Yahoo! Inc. and other holdings. It would have finished in the red
without those gains, however, as its publishing business slumped.
Softbank posted better-than-expected group net income of
37.54 billion yen ($302.5 million), or 365 yen per share, for the
year ended March 31. That's more than triple the 100.77 yen per
share it earned last year.
The company's stock rose to an all-time high last month as
investors bet its early investments in fast-growing U.S. and
Japanese Internet businesses will support long-term profit
growth. Billionaire founder Masayoshi Son focused on that
prospect when presenting the company's earnings today.
''Our strategy is to form an Internet 'zaibatsu,''' he said,
referring to the conglomerates that dominated Japan's prewar
economy. ''The market value of our listed Internet holdings this
year broke 2 trillion yen ($16 billion), and we have investments
in a lot of other companies that have yet to go public.''
Net income by Softbank and its affiliates got a boost from
the parent company's sale on Feb. 22 of 3 million shares in
Yahoo!, the world's most-visited online directory. That
transaction, on which Softbank recorded a capital gain of $390
million, and other sales of stocks helped overshadow a sluggish
performance by U.S. subsidiary Ziff-Davis Inc., the biggest
publisher of magazines for computer enthusiasts.
Current Loss
Softbank warned in February that Ziff-Davis's difficulties
would force it to post a current loss, or loss before taxes and
extraordinary items. That loss amounted to 15.47 billion yen,
reversing last year's current profit of 24 billion yen.
''Softbank's Internet investments and the rest of its
operations are two separate stories,'' said Mitsuko Morita, an
analyst at Morgan Stanley Japan Ltd., who rates Softbank's stock
''outperform.'' ''Ziff-Davis's earnings will likely improve as it
emerges from a tunnel of restructuring, but focusing on that part
of Softbank's business is pretty pointless.''
Morita and two other analysts surveyed by IBES International
Inc. forecast an average net income of 305.5 yen per share, 60
yen less than the company reported.
Softbank also announced plans to become a holding company
effective Oct. 1, citing tax benefits and greater transparency of
group companies' individual performance. After that time, when
its software and networking businesses will become a subsidiary,
Softbank's earnings will come from dividends, interest payments
and royalties paid by the companies it owns.
The company didn't issue a forecast for group earnings in
the year beginning April 1. It expects parent-company net income
of 5.5 billion yen, down from 11.7 billion yen this year. Parent
income excludes earnings from subsidiaries and most affiliates.
Analysts say profit will depend above all on how many shares
Softbank decides to sell this year. Son said the company plans to
unload one or two percent of its holdings annually.
Internet Financier
Established in 1981 as a distributor of software and
computer peripherals, Softbank has evolved in recent years into
one of the world's biggest investors in online companies.
Founder Son made a series of early bets on Internet ventures
such as Yahoo! and online brokerage E*Trade Group Inc., and the
value of those investments has since skyrocketed with the
explosion of interest on Wall Street in Internet stocks.
Softbank has accumulated $14 billion in unrealized gains on
a portfolio of eight U.S. and Japanese Internet stocks, according
to data the company updates daily on its Web site.
It has drawn upon those assets to finance investments in new
online ventures and to plug an earnings leak by Ziff-Davis, which
has seen magazine advertising revenues shrink amid slowing growth
by the U.S. market for personal computers.
Softbank's sale of Yahoo! shares, which reduced its stake to
28 percent from 30 percent, raised $410 million -- all but $20
million of which came as profit. That's because it made its
investments in Yahoo in 1995 and 1996, when shares were still
trading for only a tenth of their current price.
Investors eyeing the size of that war chest pushed
Softbank's stocks to an all-time high of 19,800 yen on April 8,
though shares have since retreated, closing today at 15,200.
''In the final analysis, Softbank's U.S. Internet holdings
have risen significantly, and those paper gains by themselves
justify its current stock price,'' said Morgan's Morita.
Analysts are also bullish on Softbank's moves to set up
joint ventures with successful U.S. online companies in Japan,
where Internet usage is just beginning to take off. Its stake in
Yahoo Japan Corp. and other ventures allow it to reach 70 percent
of the country's 14 million Internet users, estimated Merrill
Lynch Japan Inc.'s Mahendra Negi.
Negi, who rates Softbank's stock a ''long-term buy,'' wrote
in a report last month that the company's partnerships with
online broker E*Trade Group Inc. and other online financial
services companies may allow it to become ''an Amazon.com for the
Japanese financial services sector.''
''We're creating our own online financial industry,'' said
Softbank's Son.
Earnings Drain
While investors and analysts are excited about Softbank's
portfolio of Internet investments, last year's performance by
U.S. subsidiaries Ziff-Davis and Kingston Technology Co., a maker
of PC memory devices, provided little cheer.
Ziff-Davis, 70 percent owned by Softbank, is suffering from
declining advertising revenues, reflecting sluggish PC sales and
a shift by advertisers toward general-interest magazines. Last
year it cut 10 percent of its workforce and eliminated three
publications in an effort to improve profitability. It took a one-
time charge of 6.8 billion yen on that restructuring.
Softbank's Ziff-dominated media business, which accounted
for 43 percent of group operating profit two years ago, saw
revenue tumble 9.5 percent in the year just ended.
Falling global prices for memory devices depressed earnings
at Kingston, pulling down revenue from Softbank's computer
services division by 9.3 percent.
Sales for the year rose 3.5 percent to 528.2 billion yen, in
line with the company's forecast, thanks to a bigger contribution
by the software distribution and trade-show businesses.
Some analysts warn the deterioration of Softbank's older
businesses has left it vulnerable to a crash by high-flying U.S.
Internet stocks.
''The biggest downside risk facing Softbank is a decline by
Yahoo! and other U.S. Internet shares,'' said Makoto Ueno, an
analyst at Daiwa Institute of Research Inc. ''Some of those
valuations are crazy.''
Still, he rates Softbank ''outperform.'' ''Its fundamentals
aren't that great, but ratings are simply about whether a
company's shares are likely to go up or not. And people are still
buying Internet stocks. |
