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SoftBank’s self-made star needs supporting cast to shine

LiveMint logoLiveMint 11-05-2017 Tim Culpan

For a self-made billionaire, Masayoshi Son has put much of his SoftBank Group Corp.’s future in the hands of other people.

Masa spent a lot of time in Wednesday’s presentation cherry-picking numbers so he could crow about getting to ¥1 trillion ($8.8 billion) in annual profit. This was an attempt to both justify his purchase of US mobile albatross Sprint Corp., and make it look enticing for any would-be merger partner.

Source: Bloomberg

He showed that Sprint was a bigger contributor to earnings growth than his Japanese telco — earnings, that is, before interest, tax, depreciation and amortization. Deduct the latter two and Sprint provided just 18% of earnings before interest and tax, against 70% for the domestic phone business.

Source: Bloomberg

That’s akin to a parent boasting about one child raising his D grade to a C when the other child consistently gets As.

In fact, SoftBank’s massive growth in net income last year comes down to two major items: an almost ¥630 billion tax turnaround, mainly from the reversal of deferred tax liabilities and recognition of tax assets; and income from discontinued operations, namely from Supercell Oy, which it sold.

Source: Bloomberg

Investors shouldn’t bet on a repeat performance. Instead they need to focus on the future, and that’s in the hands of people such as Tim Hoettges, Donald Trump, Jean Liu and Kunal Bahl.

Hoettges is the CEO of Deutsche Telekom AG, the controlling shareholder of T-Mobile US Inc. Son aims to merge Sprint with a rival and T-Mobile is the primary candidate, which makes Hoettges the intended audience of Wednesday’s spiel. We’ll get to hear from the German on Thursday when Deutsche Telekom holds its own investor relations call.

Even if T-Mobile is interested in a tie-up, Masa will need to get it past US regulators. Enter the US president, and recall the two men’s golden handshake at Trump Tower.

As president of China’s Didi Chuxing, Jean Liu now has the task of spinning an Alibaba-sized return out of SoftBank’s recent $5 billion investment, a funding round that drove the ride-hailing company’s valuation to $50 billion. To match the scale of SoftBank’s big bet on Alibaba (a 2,500-fold return on a $20 million investment), Didi would need to reach a value of $125 trillion — and we all know that’s not going to happen.

SoftBank investment in latest Didi round

Finally there’s Kunal Bahl, co-founder with Rohit Bansal of Indian e-commerce company Snapdeal, in which SoftBank is a major investor. The Japanese company recorded a ¥114 billion impairment on its investments last year, primarily because the Indian e-commerce market is a bloodbath. Consolidation will be a crucial step in any turnaround efforts.

Except both men have admitted that the fate of the startup is now out of their hands, according to Mint, and instead it will be key investor Nexus Venture Partners calling the shots as SoftBank tries to engineer a merger with rival Flipkart. More losses will come if Nexus drags its heels or chooses another path.

For all the romance Masayoshi Son has woven into his epic script of future fame and fortune, he’s depending on the supporting cast to make him shine. Bloomberg

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