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Grand Schemes

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What’s going on?

SoftBank’s long game seems to have gone exactly as planned: the Japanese tech conglomerate reported a quarterly profit for the first time in almost a year on Tuesday.

What does this mean?

SoftBank has reported losses in each of its last three quarterly updates, partly because of a handful of big tech investments and – in the case of coworking ne’er-do-well WeWork – big tech bailouts. But last quarter, SoftBank’s Vision Fund – the venture capital arm responsible for those investments – came good. With big tech stocks leading the stock market climb, its stakes in the likes of Uber (14%) and Slack (4%) were worth a lot more. And while the valuations of the private companies Vision Fund invests in are much more secretive, they might’ve got a bump from the public companies’ higher valuations too. Add the sale of T-Mobile US to those swings in value, and SoftBank’s profit got a healthy boost.

Why should I care?

For markets: Earnings shmearnings.

The biggest recent driver of SoftBank’s earnings has been the changing valuations of the companies it’s invested in, rather than its own operations. That’s meant investors aren’t as focused on whether it’s making money as they would be for most other firms. Instead, they’re interested in how much cash SoftBank actually has and how it plans to use it. And they seem pleased: the company’s share price doubled from its low point back in March, after it promised to raise $41 billion by selling a few of its assets – maybe even chipmaker Arm – and return some of the money to shareholders.

Zooming in: Tough gig.

SoftBank could still have hard times ahead: a Californian court just ruled that Uber drivers have to be treated as employees rather than contractors, which brings with it additional costs like vacation pay. Uber – whose stock fell 4% on Tuesday – is bound to appeal, but if it loses and its stock falls further, SoftBank’s earnings could take another knock this quarter…

Originally Posted on August 11, 2020 – Grand Schemes

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