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9984 - Softbank


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Let's discuss softbank's business here, as there is already an alibaba thread. Given that it is likely Alibaba could be worth like 4-500 billion$ a couple years from now, Softbank with 34%, looks already pretty cheap. Their stake could be worth 140-180 billion$ years from now. They are not planning to sell at the IPO.

 

But what is their business worth? Market cap is 80 billion$. If you assume the alibaba gets a 100 billion$ (which seems on the low side) are their other businesses cheap at about 50 billion$? Does anyone have an opinion about that?

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This is like stock inception! Is there a list of their holdings somewhere? I couldnt find softbank in their 10k

 

TPRE uses insurance float to invest in Dan Leob's third point fund, managed in a separate account, but the positions are the same.

If you check Dan Leob's quarterly letters, you will know.

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Seems very interesting now. Alibaba stake seems undervalued inside this company unless there is some big hole in some of the other holdings which I am missing.

 

A question for the board though. How would you characterize the main guy here? Do you think his Venture Capitalism is a repeatable process? This CEO Masa Son does have a very interesting story. To me, he seems to be more of an empire builder rather an opportunistic investor in the John Malone mold. Comforting thing here is, he seems to know his spots and tries to stick around it mostly.

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yeah in that interview he said he really liked zuckerberg's whatsapp buy for 19 billion. Maybe that was politics tho.

 

Exactly. That had me squirming as well. But then he has investments in many such mobile app startups, so excessive valuations to such companies should be good for his book as well.

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  • 4 months later...

Just days after talks to acquire DreamWorks Animation SKG Inc. DWA -7.29% stalled, Japanese conglomerate SoftBank Corp. 9984.TO -0.69% has agreed to pay $250 million for close to 10% of Hollywood production and finance company Legendary Entertainment.

 

The agreement gives SoftBank the right to invest an additional $750 million, in two equal installments, over the next several years.

 

The two companies will form a joint venture to exploit Legendary's movies and TV shows on digital and mobile platforms with a particular focus on China and India. Legendary, which focuses on superhero, science-fiction and fantasy films, has produced "Godzilla" and "Pacific Rim," among others, and invested in such movies as "The Dark Knight" and "300."

 

The company, which has a long-term movie partnership with Comcast Corp.'s CMCSA -0.17% Universal Pictures, recently expanded into television and digital entertainment.

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  • 4 weeks later...

 

I agree,There seems to be a pretty big discount to NAV even with tax assumptions on BABA stake. given that they don't want to sell BABA @ today's prices their BABA stake is worth the entire market cap almost, implying the rest of the businesses just cover their debt and have no equity value. Today seems an interesting entry point given their biggest part BABA seems to be growing, while they are being penalized for Sprint's performance.

The issue I have is I don't see how the discount to NAV closes going forward. Don't see many catalysts in the near future.

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I agree,There seems to be a pretty big discount to NAV even with tax assumptions on BABA stake. given that they don't want to sell BABA @ today's prices their BABA stake is worth the entire market cap almost, implying the rest of the businesses just cover their debt and have no equity value. Today seems an interesting entry point given their biggest part BABA seems to be growing, while they are being penalized for Sprint's performance.

The issue I have is I don't see how the discount to NAV closes going forward. Don't see many catalysts in the near future.

 

I wonder why management chose to use market cap instead of enterprise value on the presentation.

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Regarding market cap likely because it is easier to understand in a business like Softbank with all of their consolidation issues. For example Sprint is consolidated and carries a ton of debt...do you value Sprint as a whole or do you take the equity portion(79.9%) of Sprint that they own...the second is easier to break out and wouldn't require backing out Minority Interests, etc.

 

On its face you have $112B in value from the public companies with the tax affect. Then you have Softbank Mobile and Telephony (and all the other asses that are not listed) to support roughly net $43B in Softbank debt (ex-Sprint Debt/Cash and ex-YAHOY cash). Softbank Mobile has other assets in there that make it hard to value (Gungho, Supercell, etc.) which came up today from an analyst at the meeting.

 

TTM Mobile/Telephony EBITDA are $11Bish (I haven't tried to back-out . So net debt/EBITDA is roughly 4x...If you give Mobile/Telephony 6x you get $66B or $23B equity value.

 

Tack that onto the $112B and you get around $135B equity value vs MC of $82B. SAy 60% upside or so plus you get Masa Son.

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Regarding market cap likely because it is easier to understand in a business like Softbank with all of their consolidation issues. For example Sprint is consolidated and carries a ton of debt...do you value Sprint as a whole or do you take the equity portion(79.9%) of Sprint that they own...the second is easier to break out and wouldn't require backing out Minority Interests, etc.

 

On its face you have $112B in value from the public companies with the tax affect. Then you have Softbank Mobile and Telephony (and all the other asses that are not listed) to support roughly net $43B in Softbank debt (ex-Sprint Debt/Cash and ex-YAHOY cash). Softbank Mobile has other assets in there that make it hard to value (Gungho, Supercell, etc.) which came up today from an analyst at the meeting.

 

TTM Mobile/Telephony EBITDA are $11Bish (I haven't tried to back-out . So net debt/EBITDA is roughly 4x...If you give Mobile/Telephony 6x you get $66B or $23B equity value.

 

Tack that onto the $112B and you get around $135B equity value vs MC of $82B. SAy 60% upside or so plus you get Masa Son.

 

Good summary.

They are not going to divest BABA, so not sure backing out the tax affect makes any sense (Do we back out taxes from KO, WFC etc in BRK book value?). Not sure if it is even remotely likely, but couldn't they figure out a way to do a tax free spin off of BABA? (I would love this :P).

 

Just backing out full BABA stake, everything else including sprint, yahoo jp, telecom/mobile etc are today selling at abt -$10 bill equity. Totally wacky.

 

I don't know what makes the NAV discount go away. Do you?

 

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No there was a great write-up in the NYT I think awhile back (maybe a couple years I cant remember) that touched on companies that used to act as proxies and now are no longer needed...like softbank/baba.

 

He might need to find a way to put more money into sprint with their operations/the auctions coming up next year so not sure how he'd do that but could have to sell some baba although i am guesssing he is smart enough to figure out how to avoid that if he doesn't want to.

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  • 2 weeks later...

Regarding market cap likely because it is easier to understand in a business like Softbank with all of their consolidation issues. For example Sprint is consolidated and carries a ton of debt...do you value Sprint as a whole or do you take the equity portion(79.9%) of Sprint that they own...the second is easier to break out and wouldn't require backing out Minority Interests, etc.

 

On its face you have $112B in value from the public companies with the tax affect. Then you have Softbank Mobile and Telephony (and all the other asses that are not listed) to support roughly net $43B in Softbank debt (ex-Sprint Debt/Cash and ex-YAHOY cash). Softbank Mobile has other assets in there that make it hard to value (Gungho, Supercell, etc.) which came up today from an analyst at the meeting.

 

TTM Mobile/Telephony EBITDA are $11Bish (I haven't tried to back-out . So net debt/EBITDA is roughly 4x...If you give Mobile/Telephony 6x you get $66B or $23B equity value.

 

Tack that onto the $112B and you get around $135B equity value vs MC of $82B. SAy 60% upside or so plus you get Masa Son.

 

Good summary.

They are not going to divest BABA, so not sure backing out the tax affect makes any sense (Do we back out taxes from KO, WFC etc in BRK book value?). Not sure if it is even remotely likely, but couldn't they figure out a way to do a tax free spin off of BABA? (I would love this :P).

 

Just backing out full BABA stake, everything else including sprint, yahoo jp, telecom/mobile etc are today selling at abt -$10 bill equity. Totally wacky.

 

I don't know what makes the NAV discount go away. Do you?

 

I think this is a very important thing to think about.  The valuation discount is very compelling, but the story is also well known (well, perhaps well known to those of us who bother looking at SoftBank).  So, why does the discount exist?  And why to such a degree?  What is it that the market doesn't know?

 

Historically I think HoldCo's like SoftBank trade at a discount.  The complexity of the business makes it difficult to understand, so people tend to stay away.  There's also the uncertainty around the loss of value due to taxes depending on how the assets are disposed of.  Lastly, there's always the danger that the HoldCo is value destroyer (although Masa Son's history strongly indicates otherwise). 

 

The other danger I see is that the valuation of current assets are pretty high, so the valuation gap can close by having the value of the assets drop (like S, and who knows where BABA will go).  To me, the margin of safety is pretty high regardless, to make this a worthwhile investment - although I imagine patience with this stock is a must.  But I think it's a tremendously useful exercise to really search out the contra-view.  So, I would definitely appreciate any additional input as to why this would NOT be a good investment.

 

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  • 2 weeks later...

Value Vulture has some thoughts on Softbank:

 

Currently Softbank trades at a market value roughly equal to its ownership stake in Alibaba, which means you are getting Softbank Japan (the most profitable wireless network in Japan), Yahoo Japan (the dominant Japanese search engine), a resurgent Sprint, and $ billions worth of venture capital investments all for FREE. At the helm of the internet empire, Masa Son is a world class investor who has managed to compound Softbank’s stock over 20% a year since the company’s IPO in 1994.

 

I estimate that the NAV of Softbank’s ex-Alibaba assets to be $80 billion, which means the stock trades at a 50% NAV discount. Each of the components in the sum-of-parts calculation also has significant upside potential, especially Alibaba, which I think is VERY misunderstood in the West.

 

https://oraclefromomaha.wordpress.com/2014/11/02/update-im-back-at-least-for-a-while/

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Should this comparison be made on the EV basis instead of market cap? Softbank has $65bn  debt net of cash (just looking at yahoo finance data), EV $143bn. Still cheap but prob not at 50% discount to NAV if the ex-baba parts worth $80 bn.

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