SoftBank’s latest big purchase could be one of its best
Summary
With its stake in chip maker Arm worth more than its own market value, a $3.5 billion buyback announcement was cheered by investors.
Buying its own shares could be SoftBank’s best bet.
The Japanese company has been on a roller coaster in the past few years as its investments—including from its Saudi-backed $100 billion Vision Fund—took a dive when the pandemic-fueled technology boom turned into a bust. SoftBank reported three straight years of losses up to the fiscal year ended March.
Now the company has announced that it will spend $3.5 billion to buy back up to 6.8% of its own shares. SoftBank’s stock hit a record high last month, driven by the artificial intelligence boom as it owns an 88% stake in British chip designer Arm. The stock has since dropped around 37%, after a decline in Arm’s stock as well as the recent selloff in Japanese stocks, so the buyback’s timing could be quite opportunistic.
Despite the recent pullback, Arm’s stock has still more than doubled from its initial public offering price in September. The build-out of data centers driven by AI has led to rising demand for chips based on Arm’s architecture. The company also has room to charge chip makers higher royalty fees for using its designs.
But SoftBank’s shares haven’t gone up to the same extent. Its stake in Arm was worth around $105 billion as of Tuesday’s close. That alone was already bigger than its own market value of around $73 billion. The company estimated its net asset value at around $170 billion on Tuesday, meaning that SoftBank’s stock is trading at a nearly 60% discount to its theoretical value if broken up.
Theoretical might be the operative word: Given Arm’s small float, it would be hard for SoftBank to cash out a substantial portion of its shareholdings. That is especially the case given the fact that Arm’s stock seems pretty pricey already: It trades at 73 times forward earnings, compared with Nvidia’s 38 times, according to FactSet. Arm’s stock plunged 16% in a single day last week after it released a disappointing sales forecast.
That is why SoftBank’s big buyback announcement on Wednesday makes sense. It is essentially buying its own assets at a deep discount, giving it some margin for error in case tech valuations turn south again.
Not all of SoftBank’s investments have worked out in recent years, but buying the asset it knows best should be welcomed by its investors.
Write to Jacky Wong at jacky.wong@wsj.com
