Stock Analysis & Ideas

SoftBank Is Battening Down the Hatches…Fast

Story Highlights

After a record Q1 loss, SoftBank has gone into defense mode and is paring stakes to shore up its cash. After SoFi, the company is now paring stake in Alibaba as well.

Earlier this week, Masayoshi Son, the Chairman, and CEO of SoftBank (SFTBY) (GB:0I7I) emphasized that the company is going into defense mode after hitting a record quarterly loss. Now, the company is shoring up cash at a rapid click. SoftBank is a holding company engaged in mobile communication, telecom, e-commerce, and microprocessors through its Vision funds.

Having already begun unloading its stakes in Uber (UBER) (GB:0A1U), Opendoor (OPEN), and most recently SoFI Technologies (SOFI), SoftBank is now paring holdings in its crown jewel – Alibaba Holdings (BABA) (GB:0HCI).

Did SoftBank Sell Alibaba Stock?

SoftBank has racked up a loss of $37 billion over the past six months. Now, it is looking at gains of about $34 billion from its Alibaba deal. SoftBank will not have to sell the shares directly and will be settling its prepaid forward contracts that use Alibaba shares. This will bring its stake in the Chinese internet giant down to 14.6% from 23.7%.

Significantly, the transaction will help SoftBank alleviate any worries over its cash position while also bringing down costs related to these contracts.

A Larger Decoupling Continues to Take Shape

Symbolically, the move also shows a decoupling between SoftBank and Alibaba. The former first invested $20 million in the latter in 2000. SoftBank’s Masayoshi Son and Alibaba’s Jack Ma previously sat on the other company’s board until 2020. During this period, Son’s Vision fund kept making new highs while Alibaba’s valuation also climbed to new peaks.

From a 2019 high of about $310, Alibaba shares have retreated to present $92 levels amid a challenging macro environment, regulatory concerns, and a tough stance in Beijing. SoftBank’s multiple headline-grabbing investments have turned sour in this period as well.

Market Participants’ Sentiments are Hard on SoftBank

In the meantime, a TipRanks Smart Score of 1 and Wall Street’s consensus rating of Moderate Sell imply that SoftBank shares may not deliver outperformance anytime soon. That’s after a 15.5% slide in share price so far this year.

Retail investors, too, seem to be offloading their Softbank holdings. Our data shows that over the past month, the number of portfolios on Tipranks that hold SoftBank shares has declined by 1.1%.

Closing Note

As interest rates continue to tighten, liquidity dries up and geopolitical tensions keep flaring up globally, macro storm clouds continue to brew over the global economy. SoftBank’s fast moves this week indicate Mr. Son is battening down the hatches to weather the storm.

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