SoftBank Corporation owns and operates a collection of Internet and Wireless Telecommunication businesses. Furthermore, the Chairman & CEO Masayoshi Son has proven his skills as an capital allocator and innovator. Going forward, SoftBank has announced to reorganise its corporate structure into two distinct wholly owned subsidiaries – one for its domestic business, one for its international business. This restructuring would require approval from shareholders, but the board is confident it will be completed by 31 December 2016.
Masayoshi Son’s Investment Track Record
Looking at Chairman & CEO Masayoshi Son’s investment track record, it is definitely one that deserves recognition. Prior to the company entering the wireless business, Masayoshi Son was able to convince the late Steve Jobs to provide SoftBank iPhone exclusivity. Furthermore, some other notable investment successes accomplished by Masayoshi Son were Yahoo Japan, Alibaba Group and Vodafone Japan otherwise now known as SoftBank Mobile.
In the following charts, we are able to see how Masayoshi Son turned an accumulated investment of JPY 387.7bn into JPY 11tn 669.9bn, translating to an IRR of 45%, which is a return of 30x over an average span of 9.5 years.
Turnaround of Sprint Corp
Prior to SoftBank’s acquisition of Sprint Corp, the company had been on a path of destruction due to past management mistakes such as poor workforce management, network integration and customer experience. Some examples were like its merger with Nextel Communications in 2005 – the user of the now defunct iDEN technology, decommissioning the iDEN network which resulted in disruptions for its subscribers and making a renegade decision to deploy WiMAX standard instead of focusing on global standard of LTE which set the company back several years.
From the recent Sprint’s turnaround initiatives, we are able to see an increase in cumulative subscriber numbers, post-paid phone ARPU and post-paid churn rates. Furthermore, they have reported that they had been able to achieve targeted cost reductions and liquidity improvements.
However, while things may be looking rosy for Sprint Corp in the short run, we foresee greater problems in the longer run. The company has USD30.4bn in debt and of which a lot of it is coming due in the next few years. USD2.3bn in 2016, USD2.3bn in 2017 and USD3.0bn in 2018. While Sprint is trying to shore up its cash position, it is slightly just above USD2.0bn based on 3Q2016 results. Furthermore, asides from debt obligations, the company is spending a huge amount of money on capital expenditures to improve the company’s infrastructure.
Alibaba Group: The Crown Jewel
Part of SoftBank Corp’s investments consists of a 32.6% stake in Alibaba Group. They made the investment during the pre-ipo stage, exchanging JPY10.5bn for 32.6% of Alibaba Group. Not much introduction should be required for the company, given that it is the largest e-commerce company in the world today with an unparalleled competitive position of ~80% market share. With the Chinese e-commerce market still in its early days, we see much growth potential for Alibaba group going forward.
As seen from the chart above, the data from CLSA, iResearch and US Department of Commerce, we see total China online retail GMV overtaking total US online retail GMV in 2013.
Furthermore, comparing the online retail scene between China and USA, we can see that the online scene in China is growing at a much faster pace as compared to that of USA.