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For most of its existence, SoftBank was known as a Japanese phone company that made some lucky bets. But in the future, being an investor in the company will mean betting on the investment prowess of its founder, Masayoshi Son.
Over the past few months, SoftBank has moved to drastically shrink itself. In April, it struck a deal to combine Sprint, which it controls, with T-Mobile, reducing its share of the embattled U.S. carrier’s financial burden. It announced plans earlier this week to spin out its domestic telecom business.
If those deals go through, what would be left of the company is essentially a gigantic, publicly traded venture capital firm. Its holdings would include:
■ A 27 percent stake in Alibaba Group, the Chinese internet behemoth
■ A 43 percent stake in Yahoo Japan
■ A stake in ARM, the British designer of computer chips
■ An investment in its nearly $100 billion Vision Fund, the much-ballyhooed tech investment vehicle that owns stakes in Uber and much more
But SoftBank shares currently trade at a steep discount compared to the sum of those parts. The hedge fund Tiger Global Management recently calculated that SoftBank’s net asset value is $190 billion. SoftBank’s entire market capitalization as of Friday is about $94 billion.
SoftBank’s stake in Alibaba alone is now worth nearly $132 billion, or 40 percent more than SoftBank’s market cap. But its stock price hasn’t moved in lock step with the internet company in the way you might have expected it to. In fact, it hasn’t moved much in years.
It makes sense for SoftBank’s stake to be valued at a discount: The entire investment can’t be easily sold in one go. But the gap appears to be too steep, given all of its other assets.
To solve the valuation gap, Mr. Son is doubling down on deal-making. By spinning out SoftBank’s domestic telecom division, he is letting that business trade on its own merits. But he is also betting that investors in SoftBank believe in his continued ability to make savvy investments.
There’s no doubt that he has made some of the most profitable bets in the history of the tech industry. SoftBank’s $100 million investment in Alibaba mushroomed to almost $132 billion. Its $70 million stake in Yahoo Japan grew into an $8 billion holding.
Mr. Son’s luck isn’t guaranteed to continue. His Vision Fund is his vehicle for investing in technologies that he thinks will define the future, and it has bought big stakes in promising start-ups like Uber and the messaging service Slack. But it has also made much more speculative bets that have left some people in Silicon Valley scratching their heads — from the co-working space firm WeWork to the indoor farming start-up Plenty to the dog-walking app Wag.
Tiger Global, which told investors in a client letter earlier this week that it had bought more than $1 billion worth of SoftBank stock, argued that other shareholders will eventually realize just how valuable the Japanese company’s holdings will be.
In that client letter, a copy of which was reviewed by DealBook, executives from the hedge fund wrote that the current disconnect between the value of SoftBank’s holdings and its market value “ strikes us as an odd anomaly that is unlikely to exist forever.”
Tiger Global may certainly be right that SoftBank’s current market value appears to be extremely discounted. But the future of the company — and how high its stock will ultimately climb — now depends on Mr. Son’s investment skills.
