SoftBank Group Corp. on Tuesday reported a 97% plunge in quarterly profits and the failure of a deal to sell chip designer Arm worth more than $60 billion, increasing pressure on the Japanese conglomerate to support its shares falling.
SoftBank said it posted net profit of 29 billion yen ($251 million) in the October-December quarter, up from a record profit of 1.2 trillion yen a year earlier as its portfolio straightened.
Separately, SoftBank announced that the sale of Arm to Nvidia fell through amid regulatory hurdles in a major setback to its fundraising plans.
The decision comes after US authorities lodged a complaint seeking to block the sale and investigations were launched into the deal in the UK and Europe.
The Japanese investment giant said it would recognize the $1.25 billion break fee that Nvidia filed as fourth-quarter profit.
After tech unicorns plunged into ‘coronavirus valley’ at the start of the COVID-19 pandemic, SoftBank CEO Masayoshi Son enjoyed a recovery in valuations as startups such as the trading firm Coupang electronics were hitting the market.
Today, valuations are under pressure again as investors cast a skeptical eye on tech companies promising future earnings and central banks move towards tapering pandemic stimulus.
The Vision Fund unit recorded an investment gain of 111.5 billion yen in the quarter, a sharp decline from a gain of 1.4 trillion yen a year earlier.
“Even though some of the public companies have lost value, there have been significant follow-on funding rounds where outside institutional investors have led those rounds,” Vision Fund chief financial officer Navneet Govil told Reuters.
Many SoftBank portfolio companies are trading below their listing price, with office-sharing company WeWork, ride-sharing company Grab and used-car platform Auto1 all falling in the quarter.
The group’s exposure to China also hurt performance, with regulators taking action against tech companies. Shares of e-commerce giant Alibaba, in which SoftBank has a stake, fell by a fifth in the three months to the end of December.
These assets are used by the group for lending as it invests through its Vision Fund unit, which manages the $100 billion Vision Fund and a second, smaller fund and has become the group’s priority.
Vision Fund 2, which had $51 billion in committed capital at the end of December, had invested $43.1 billion in more than 200 startups. Industry watchers have noted a disconnect between frothy private markets and public market skepticism.
“We’re seeing a healthy rebalancing…at some of the more extreme ends of the market,” Govil said. “We turned down quite a few deals because we thought the valuations were rich.”
Portfolio companies, including sports e-commerce company Fanatics, held funding rounds during the quarter. Vision Fund distributed $44.2 billion to its limited partners across the two funds.
The earnings come at a watershed moment for the conglomerate as top executives leave the company, including chief operating officer Marcelo Claure, who led WeWork’s restructuring and launched the group’s Latin America-focused fund .
The company has also experienced internal turmoil recently following reports that Claure’s claims for compensation of up to $1 billion had fueled an internal clash.
SoftBank launched a 1 trillion yen buyout in November.
The group’s shares closed down 0.9% before earnings and are down about half since highs in March last year.
Son, who said three months ago that SoftBank was in a “blizzard,” will speak at a press conference at 4:30 p.m. local time