Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Coupang’s monster IPO is very likely to be the highlight of Vision Fund 1 and provides a solid counterpoint to the WeWork debacle early in the IPO cycle but there remains a significant number of portfolio companies still to come. At Q3 results, Softbank talked about an ongoing parade of companies coming to market with 10-15 annual events but there is a push to get companies to list whilst markets are still receptive and FY21 could see up to 20 companies hit public markets.That is positive for Softbank shares which tend to rise in anticipation of surfaced value, again assuming the IPO market remains open. It also serves to highlight the main risk for Softbank shares as a sustained tech sell-off would lower the value of the Vision Fund portfolio, increase concerns about Northstar and lower expectations for the current crop of IPO hopefuls.<h2>Highlights</h2>Softbank Vision Fund could see up to 20 companies hitting public markets 2021 should favorable conditions continue. Vision Fund says it is encouraging companies to go public whilst conditions are still receptive and Q4 (Mar) can already boast of two listings, a SPAC merger and two more listings in process. Leading candidates to go public include Didi Chuxing and GrabCoupang upside alone doubles total returns and will boost Vision Fund to its best quarter ever.  As of mid-March, Vision Fund’s public portfolio is up $27bn versus $13bn in Q2, $8bn in Q2 and $2bn in Q1. On the aggregate, it more than doubles the Vision Fund total return There may upside in the private portfolio too as Cruise raised funds in January at a 58% premium. It is usually a mug’s game trying to figure out where private valuations will end up but the Cruise stake is large enough to outweigh a lot of smaller changes for other portfolio companies. Cruise raised $2bn in January at a $30bn valuation, a 58% premium to where Softbank invested and a possible $1.3bn unrealized gain ($2.25bn &gt; $3.55bn)Portfolio company View went public through a SPAC merger but at an apparent loss for Vision Fund.  Smart glass maker View’s SPAC merger closed 9 March, the day before the Coupang IPO but it appears Softbank’s original $1.1bn investment is worth barely half that. That is a fraction of the Coupang upside but is a reminder that valuations can go both ways. Other problem investments include Greensill, Katerra, Oyo and OakNorth

Coupang’s monster IPO is very likely to be the highlight of Vision Fund 1 and provides a solid counterpoint to the WeWork debacle early in the IPO cycle but there remains a significant number of portfolio companies still to come. At Q3 results, Softbank talked about an ongoing parade of companies coming to market with 10-15 annual events but there is a push to get companies to list whilst markets are still receptive and FY21 could see up to 20 companies hit public markets.That is positive for Softbank shares which tend to rise in anticipation of surfaced value, again assuming the IPO market remains open. It also serves to highlight the main risk for Softbank shares as a sustained tech sell-off would lower the value of the Vision Fund portfolio, increase concerns about Northstar and lower expectations for the current crop of IPO hopefuls.HighlightsSoftbank Vision Fund could see up to 20 companies hitting public markets 2021 should favorable conditions continue. Vision Fund says it is encouraging companies to go public whilst conditions are still receptive and Q4 (Mar) can already boast of two listings, a SPAC merger and two more listings in process. Leading candidates to go public include Didi Chuxing and GrabCoupang upside alone doubles total returns and will boost Vision Fund to its best quarter ever.  As of mid-March, Vision Fund’s public portfolio is up $27bn versus $13bn in Q2, $8bn in Q2 and $2bn in Q1. On the aggregate, it more than doubles the Vision Fund total return There may upside in the private portfolio too as Cruise raised funds in January at a 58% premium. It is usually a mug’s game trying to figure out where private valuations will end up but the Cruise stake is large enough to outweigh a lot of smaller changes for other portfolio companies. Cruise raised $2bn in January at a $30bn valuation, a 58% premium to where Softbank invested and a possible $1.3bn unrealized gain ($2.25bn &gt; $3.55bn)Portfolio company View went public through a SPAC merger but at an apparent loss for Vision Fund.  Smart glass maker View’s SPAC merger closed 9 March, the day before the Coupang IPO but it appears Softbank’s original $1.1bn investment is worth barely half that. That is a fraction of the Coupang upside but is a reminder that valuations can go both ways. Other problem investments include Greensill, Katerra, Oyo and OakNorth

Softbank Group - Vision Fund’s Race to Liquidity

It has been a roller-coaster week for Vision Fund performance with Coupang pricing its IPO at a premium to already heady valuations whilst at the opposite end of the spectrum fintech investee Greensill has completed a rather quick move to insolvency. Markets seems to have taken both in stride as Softbank shares continues to hover above the ¥10,000 level whilst the corresponding discount to underlying public values remains at c. 20%. Since Softbank reported Q3 results, tech shares in the US have weakened and Vision Fund portfolio companies are down 14%/$7bn. Whilst expectations of further IPOs (Grab and or Didi) are supportive, share price performance will rely heavily on US tech sentiment going forward. HighlightsCoupang has reportedly priced its IPO at $35, which is well ahead of our fair value but not surprising in a frothy market. Coupang’s recent growth acceleration and move towards profitability make the stock attractive despite the premium valuation. The reported price implies a 3.1x EV/FY21e sales which is much higher than a direct peer group that includes Amazon (2.8x sales).Greensill has collapsed with Vision Fund exposure of up to $2bn. That is a lot of money but Coupang upside will outshine the impact on Vision Fund performance when quarterly numbers come out. What is worrisome is that this marks the second time a Softbank-backed financial firm has failed following Wirecard last summer. In addition, Greensill reportedly provided funding to four or five Vision Fund companies (Katerra, Oyo, View, Fair, Guazi) and without any disclosure it is not known whether Greensill’s demise would have a knock-on effect.Vision Fund’s public portfolio is down 14% since Q3 results. The volatility in tech valuations in the US has had an impact on Vision Fund’s public portfolio which is down 14% (or $6.9bn) since 9 February led by a 28% decline in DoorDash and a 19% decline in Beike (in VF 2).  That excludes any losses that may come at the cash management subsidiary Northstar which had $22bn invested in liquid tech assets at the end of Dec. AT Q3 results, Softbank said a $1bn loss at the end of the quarter had inverted to a c. $1bn gain by 9 February and that easily could have inflected again.

It has been a roller-coaster week for Vision Fund performance with Coupang pricing its IPO at a premium to already heady valuations whilst at the opposite end of the spectrum fintech investee Greensill has completed a rather quick move to insolvency. Markets seems to have taken both in stride as Softbank shares continues to hover above the ¥10,000 level whilst the corresponding discount to underlying public values remains at c. 20%. Since Softbank reported Q3 results, tech shares in the US have weakened and Vision Fund portfolio companies are down 14%/$7bn. Whilst expectations of further IPOs (Grab and or Didi) are supportive, share price performance will rely heavily on US tech sentiment going forward. HighlightsCoupang has reportedly priced its IPO at $35, which is well ahead of our fair value but not surprising in a frothy market. Coupang’s recent growth acceleration and move towards profitability make the stock attractive despite the premium valuation. The reported price implies a 3.1x EV/FY21e sales which is much higher than a direct peer group that includes Amazon (2.8x sales).Greensill has collapsed with Vision Fund exposure of up to $2bn. That is a lot of money but Coupang upside will outshine the impact on Vision Fund performance when quarterly numbers come out. What is worrisome is that this marks the second time a Softbank-backed financial firm has failed following Wirecard last summer. In addition, Greensill reportedly provided funding to four or five Vision Fund companies (Katerra, Oyo, View, Fair, Guazi) and without any disclosure it is not known whether Greensill’s demise would have a knock-on effect.Vision Fund’s public portfolio is down 14% since Q3 results. The volatility in tech valuations in the US has had an impact on Vision Fund’s public portfolio which is down 14% (or $6.9bn) since 9 February led by a 28% decline in DoorDash and a 19% decline in Beike (in VF 2).  That excludes any losses that may come at the cash management subsidiary Northstar which had $22bn invested in liquid tech assets at the end of Dec. AT Q3 results, Softbank said a $1bn loss at the end of the quarter had inverted to a c. $1bn gain by 9 February and that easily could have inflected again.   

Softbank Group - Vision Fund Ups and Downs: Coupang and Greensill

Softbank-backed insurtech platform Lemonade has filed a preliminary prospectus to list on NYSE. The company reportedly considered an IPO last year but Uber share price erosion and the failed WeWork listing made that unattractive for the loss-making company. The financials are modestly better now although the major change may be a recovery in equity markets that makes testing the waters palatable. This is not a major listing for Vision Fund as the estimated SVF investment of $400mn puts it mid-table in size (#33 on our list) but a successful listing would mark the first IPO for the fund since last year, signaling a path to liquidity for private investments that have caused so much concern in 2020. There are risks as Lemonade boasts the same combination of a high valuation and material operating losses that drove choppy trading for VF candidates but upside for those same companies now bodes well (VF’s public portfolio is +28% QTD). The main driver for Softbank’s share price continues to be market reactions to asset sale and debt reduction plans whilst ongoing share buybacks provide support.

Softbank-backed insurtech platform Lemonade has filed a preliminary prospectus to list on NYSE. The company reportedly considered an IPO last year but Uber share price erosion and the failed WeWork listing made that unattractive for the loss-making company. The financials are modestly better now although the major change may be a recovery in equity markets that makes testing the waters palatable. This is not a major listing for Vision Fund as the estimated SVF investment of $400mn puts it mid-table in size (#33 on our list) but a successful listing would mark the first IPO for the fund since last year, signaling a path to liquidity for private investments that have caused so much concern in 2020. There are risks as Lemonade boasts the same combination of a high valuation and material operating losses that drove choppy trading for VF candidates but upside for those same companies now bodes well (VF’s public portfolio is +28% QTD). The main driver for Softbank’s share price continues to be market reactions to asset sale and debt reduction plans whilst ongoing share buybacks provide support.

Softbank Group: When Your Private Portfolio Gives You Lemons, Offer Lemonade

With restructuring plans and FY19 operating losses already announced, the volatility around Softbank Group has eased but concerns on Vision Fund portfolio companies could continue to rise. In the week since we discussed potential write-down candidates at Vision Fund, Oyo Hotels has expanded its cost reduction measures whilst another portfolio company, Automation Anywhere, is laying off 10% of employees.  On the plus side, Vision Fund's 8th largest holding Paytm appears close to securing a $100mn investment from Microsoft.  Meanwhile, there is some evidence that buybacks have started as Softbank shares are up 9% from two weeks ago when it pre-announced FY19 operating losses. The shares still trade at a 50% discount to fair value, however,  and are likely to remain around this level until details on the asset sale/buyback timing are released.

With restructuring plans and FY19 operating losses already announced, the volatility around Softbank Group has eased but concerns on Vision Fund portfolio companies could continue to rise. In the week since we discussed potential write-down candidates at Vision Fund, Oyo Hotels has expanded its cost reduction measures whilst another portfolio company, Automation Anywhere, is laying off 10% of employees.  On the plus side, Vision Fund's 8th largest holding Paytm appears close to securing a $100mn investment from Microsoft.  Meanwhile, there is some evidence that buybacks have started as Softbank shares are up 9% from two weeks ago when it pre-announced FY19 operating losses. The shares still trade at a 50% discount to fair value, however,  and are likely to remain around this level until details on the asset sale/buyback timing are released. 

Softbank Group: An Update on Vision Fund Companies and Trading Volumes

In this report, we dig into the Vision Fund portfolio to see which investments drive what looks to be a ~¥1,000bn operating loss for Q4. We have a fairly good idea that Didi Chuxing drives one-quarter of that, whilst an impairment at Grab is also likely. Beyond that, we believe ride hailing and selected eCommerce (Ola Cabs, Guazi are the largest), struggling start-ups (Oyo Hotels and CloudMinds lead this group) and bankruptcies (Brandless for sure but possibly Zume, Opendoor, Getaround and Fair) can account for most of the downside. We expect that Covid-19 is going to feature strongly when results are presented but many of these companies were hurting before the impact of the pandemic became clear and it is possible that further impairments are still to come. Softbank share have recently outperformed in the bear market rally and (probably) share repurchases but we would be cautious.

In this report, we dig into the Vision Fund portfolio to see which investments drive what looks to be a ~¥1,000bn operating loss for Q4. We have a fairly good idea that Didi Chuxing drives one-quarter of that, whilst an impairment at Grab is also likely. Beyond that, we believe ride hailing and selected eCommerce (Ola Cabs, Guazi are the largest), struggling start-ups (Oyo Hotels and CloudMinds lead this group) and bankruptcies (Brandless for sure but possibly Zume, Opendoor, Getaround and Fair) can account for most of the downside. We expect that Covid-19 is going to feature strongly when results are presented but many of these companies were hurting before the impact of the pandemic became clear and it is possible that further impairments are still to come. Softbank share have recently outperformed in the bear market rally and (probably) share repurchases but we would be cautious.

Softbank Group: Deep Dive into Vision Fund's $10bn in Expected Valuation Losses for This Quarter

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Softbank Group - Vision Fund’s Race to Liquidity

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Kirk Boodry

Softbank Group - Vision Fund Ups and Downs: Coupang and Greensill

Vision Fund is having an interesting week: Coupang's IPO priced at a premium (+2.8bn in incremental gains) but portfolio company Greensill has...

Kirk Boodry

Softbank Group: When Your Private Portfolio Gives You Lemons, Offer Lemonade

Softbank-backed insurtech platform Lemonade has filed a preliminary prospectus to list on NYSE. The company reportedly considered an IPO last year...

Kirk Boodry

Softbank Group: An Update on Vision Fund Companies and Trading Volumes

With restructuring plans and FY19 operating losses already announced, the volatility around Softbank Group has eased but concerns on Vision Fund...

Kirk Boodry

Softbank Group: Deep Dive into Vision Fund's $10bn in Expected Valuation Losses for This Quarter

In this report, we dig into the Vision Fund portfolio to see which investments drive what looks to be a ~¥1,000bn operating loss for Q4. We have a...

Kirk Boodry

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