SoftBank: look on my works, ye mighty
All this complexity deserves a discount
Not every person can boast a 12-hour battery life and an ability to read emotions. So there must be a place in life for Pepper – a humanoid robot with both attributes. It is a creation of one of the 1,300 subsidiaries of Japan’s SoftBank, an internet-era zaibatsu. Pepper may one day try to charm customers of another SoftBank asset, Sprint. Last year the US phone carrier – SoftBank owns four-fifths – tried for a merger with T-Mobile USA to create a third big US wireless carrier. It failed.
Sprint has been losing customers this year, despite threatening a price war against its rivals. In the third quarter it lost half a million contract subscribers year on year, and a billion dollars from its profit forecast for 2014 (to $6bn). Reverberations from Monday’s late report reached Tokyo – SoftBank cut its own operating profit forecast for the fiscal year ending in March by 10 per cent – before returning to hit Sprint’s stock on Tuesday. It fell a fifth, a big move for a (now) $20bn company.
Pepper, emotionally-attuned fellow that he is, may not feel very valued, given Softbank’s share price. SoftBank has a market capitalisation near $85bn. Behind this valuation – and under its founder Masayoshi Son’s three-centuries-long plan for his company – SoftBank has, in addition to $16bn worth of Sprint shares, a stake in Yahoo Japan worth more than $7bn, and a third of Alibaba’s shares with a market value of $80bn, and net cash on its balance sheet.
Even after accounting for capital gains taxes on any future sale of the Alibaba stake, and a conglomerate discount, it looks like the market is placing little value on the core Japanese telecom business. Does that make the shares cheap?
A precedent. Naspers, the South African media empire, has a $51bn market capitalisation. It has stakes in Tencent and Mail.ru which it values at $55bn. This implies that shareholders get print and pay-TV businesses, plus a string of investments in ecommerce sites across emerging markets, free.
But these latter assets are made of cheap pixels. SoftBank is also snapping up stakes in Asian internet properties but it operates in telecoms – in which capital spending on networks can be relentless and cross-border synergies few. Sprint for its part plans cost-cuts of $1.5bn for its turnround. All this complexity deserves a discount. Unless, that is, Pepper is a dab hand at valuation multiples too.