Slack, DoorDash Boost Softbank Vision Fund’s Q1, Uber Lags

On August 7, Japan’s Softbank (SFTBY) reported its fiscal 2020 first-quarter earnings results for the period that ended in March. The group reported 2.3 trillion Japanese yen ($21.2 billion at the average exchange rate) in revenue during the quarter. While its operating income fell 3.7% to 688 million yen ($6.5 billion) primarily due to Sprint’s dismal performance, its net income rose by over 250% thanks to a whopping pretax gain of 1.2 trillion yen ($11 billion) on the sale of some Alibaba shares in a complicated transaction. Softbank still holds around 26% in Alibaba (BABA). Alibaba shares were trading 1.27% down in premarket trading today at 6:28 AM ET.

Softbank Vision Fund, Softbank’s $97 billion megafund, was a star performer in the first quarter. The fund’s operating income grew over 65% to 397.6 billion yen ($3.6 billion), primarily on account of unrealized gains.

Softbank Vision Fund gains on Slack, DoorDash

According to Softbank, Softbank Vision Fund reported unrealized gains of 603.8 billion yen ($5.5 billion) on its investments in Slack (WORK), DoorDash, and OYO. The fund reported that its $66.3 billion investments in 81 companies had a fair value of $82.2 billion on June 30.

Slack went public during the quarter, turning Softbank Vision Fund’s $250 million investment into over $1 billion. Softbank Vision Fund holds a 7.3% stake in Slack.

Softbank Vision Fund also invests in DoorDash, a food delivery startup, which has seen its valuation almost double within three months. OYO, an Indian travel and hotel startup that’s quickly expanding across the world, has also given the fund considerable returns.

Uber disappoints

Uber (UBER) has been Softbank Vision Fund’s biggest investment so far. The fund has invested $7.7 billion in Uber in multiple rounds. However, Uber’s flop IPO and subsequent pressure on the stock have resulted in the fund marking down the investment’s value. The fund reported an unrealized loss of 195.3 billion yen ($1.8 billion) on its investments in Uber and others. Uber reported disappointing second-quarter results yesterday after the market closed. The stock was down 8.5% in premarket trading today at 7:55 AM ET.

What to expect from the current quarter

That’s not all. WeWork (a company specializing in coworking and shared offices) and CloudMinds (a company that creates intelligent cloud systems for robots) have also filed for IPO paperwork. The market is gearing up for WeWork’s IPO, which is expected to happen in September. The success of these IPOs will be vital to Softbank Vision Fund’s fiscal 2020 second-quarter results.

Since the beginning of the current quarter, the stocks of Uber and Slack have fallen. Slack, which closed at $37.5 in June, is down to $31.5. Uber closed at $46.38 in June but has lost steam in the current quarter. The stock closed at $42.97 yesterday. If these stocks don’t recover by the end of the quarter, there will be more unrealized losses on the fund’s books.

In the same quarter last year, the fund reported a gain of 146.7 billion yen ($1.3 billion) from exiting India’s Flipkart. In August 2018, Walmart (WMT) completed its acquisition of Flipkart. Walmart bought a 77% stake in Flipkart for $16 billion, valuing the e-commerce company at $21 billion. The absence of these gains will also affect Softbank Vision Fund this quarter.

The fund also recorded a valuation gain of 503.8 billion yen ($4.6 billion) on its stake in NVIDIA (NVDA) and others. NVDA gained 18.6% between June and September last year. The fund sold its stake in NVIDIA for $3.3 billion in January 2019. The absence of the related gains will also affect the fund’s performance in the current quarter.

Softbank Vision Fund 2

The biggest news from the company in the current quarter is related to its launch of Softbank Vision Fund 2. Softbank’s chair, Masayoshi Son, said that the fund is expected to start investing soon from the $108 billion in capital it’s scheduled to raise from investors including Microsoft and Apple.

To read about Son’s fascinating story, check out our series SoftBank’s Masayoshi Son: Japan’s Buffett Once Lost $70 Billion.