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SoftBank’s cosmic journey leaves investors off balance

SoftBank Group Corp updates

In the four decades since he founded SoftBank, Masayoshi Son has perfected the eye-catching presentation slide. Telepathic pets; doomed lovers; a pie chart of sorrow; unicorn foals soaring over a canyon. Without remotely clarifying strategy, these gems have confirmed their creator as a chief executive with ideas way too galactic for PowerPoint.

Last week, however, according to analysts and long-term SoftBank investors, Son’s capacity to explain one of the world’s most beguiling companies — on stage, in person and with unambiguous words — once again let him down. Even on the vital matter of China, where he simultaneously declared a pause on new investment while stressing the country’s critical future role to his business, the lack of detail stood out. 

When he talks to investors individually or in small groups, say those with first-hand experience, Son’s account of SoftBank is supremely lucid and persuasive. In other contexts, it is bafflingly less so. Last week, as the company released its first-quarter results, approached its 40th birthday next month and tried to inject vitamins into a share price 38 per cent lower than it was in March, the disparity seemed wider than ever.

There were several signs that not all is well. The first came during Son’s attempt to define SoftBank — a segment that felt more like a chore set by a harrowed investor relations department than something the founder actively relished. The hurdle is considerable: since the group separated its telecoms business and announced plans to sell the chip designer Arm, shareholders have been left to think of SoftBank as a technology investment conglomerate — three words which, depending on the timing, have the potential to deliver three flavours of market discount. 

Investors have grumbled for some time that they would like a more substantial definition, and at last week’s event Son offered “vision capitalist”. He first introduced this phrase at the annual shareholders meeting in June. It might look inspirational on a T-shirt, and few would question that SoftBank is the world’s biggest vision capitalist. But it leaves the market, for now, no wiser.

For many, the definition requires a clear, constantly updated blueprint of what exactly the vision is — and how far it is shared and understood by anyone at SoftBank other than Son himself — for the “capitalist” part to command a premium on SoftBank shares. 

In a related revelation, Son told a limited group of shareholders on a post-results call that his attempts to convince nervous SoftBank board members to sink more of their own money into the Vision Fund had sputtered. It was clear that he found their timidity frustrating. It is not clear that he grasps the inference some investors, however loyal, might draw from that story.

A second issue arose when Son switched the focus of his presentation to a breakdown of the company’s net asset value — a figure which, as of June 30, was $239bn. The plan was to allay concerns by stressing that listed companies accounted for 87 per cent of the NAV.

Because these holdings are listed and because, as Son put it, their values are constantly “checked and priced around the world”, SoftBank investors should feel more comfortable about the valuation of the portfolio. By extension, ran the barely disguised subtext, they should share Son’s outraged disbelief that SoftBank’s own market capitalisation is currently about $100bn. 

Such a huge discount would seem to justify a generous share buyback programme. Son’s failure to confirm such a plan left investors disappointed and analysts struggling to see where else the catalyst for a share price recovery might come from.

More jarring still was the paradox in Son’s analysis. Investors, he seemed to be saying, should have much more faith in the markets’ valuation of SoftBank’s listed asset portfolio, but much less faith in their valuation of SoftBank itself. If he had envisaged using a slide that captured this paradox — perhaps one of those optical illusions that can be seen as both a duck and a rabbit — it did not make it into the presentation.

Meanwhile, an unexpected truth about SoftBank and Son himself may be emerging — namely, that “vision capitalist” is a good deal more prudent and pedestrian than the phrase and the presentations suggest. A quarter of a century ago, Son bet heavily on the internet because he believed it was transformational. Now he is doing the same with artificial intelligence.

Son’s difficulty in explaining the company to the markets may, at its core, stem from his extraordinary powers as a salesman. He is eager to load the SoftBank rocket with the stardust of visions that stretch centuries into the future. But his enthusiasms risk blinding him to the possibility that the futurist razzmatazz is freight, not rocket fuel.


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