Japan's SoftBank Group is expected to post a net profit for the first time in five quarters when the tech investment giant reports earnings on Thursday, benefiting from strong gains in the value of its listed assets.
The company has worked hard to shore up its financial position and investors will be looking for any clues as to what it might do with the ample capital it now has at its disposal to deploy - in particular whether it will embark on share buybacks.
The opaque nature of many of SoftBank's investments makes forecasting difficult but three of four analyst estimates collated by LSEG and Reuters call for a third-quarter profit of between 282 billion yen to 460 billion yen ($1.9 billion to $3.1 billion). Only one calls for a loss, of 67 billion yen.
The company has flagged that it will book $1.9 billion in gains on the T-Mobile shares it received last year after conditions in SoftBank's 2020 deal to sell U.S. mobile carrier Sprint to T-Mobile were met. The gains reflect an accounting time lag in assessing the fair value of the shares.
For its non-listed assets - many of which are in its Vision Fund 2 - analysts do not expect major revaluations given that capital markets have been quiet over the past quarter.
A net profit would mark a long-awaited turnaround for SoftBank and its founder Masayoshi Son whose reputation for having a Midas touch with investing was hit after the failure of high-flying office-sharing startup WeWork.
More pain came when SoftBank's portfolio of tech startups in its two Vision Funds - which commanded high valuations between 2020 and 2021 - fell out of favour in the higher interest rate environment that followed the pandemic.
To improve its financial position, SoftBank sold almost all of its "crown jewel" stake in Chinese e-commerce group Alibaba.
SoftBank's cash position - which also includes cash equivalents and liquid bond holdings - as of end-September stood at 5.1 trillion yen ($34.5 billion).
That's led to high expectations among investors that SoftBank will reward them with share buybacks, analysts say.
SoftBank has in the past conducted share buybacks to help tackle the discount to its net asset value at which its shares trade when the discount has been at similar levels.
"The setup for a buyback is a strong one," said Rolf Bulk of New Street Research. "But management’s intentions are still unclear."
In recent quarters, SoftBank has "carefully restarted" investing and it remains to be seen how much more of an aggressive stance the company might take.
"Whereas the rest of the world is investing aggressively in AI startups, SoftBank has become a lot more disciplined in its investments," said Bulk.
It recently set out stringent quality and valuation criteria for investments, but with few deal announcements to go on, analysts are hoping for clarity on how many companies currently seeking out investment fit the bill.
They also noted that SoftBank could also sell down or use as collateral either its T-Mobile holdings or its 90% stake in chip designer Arm to fund investments or buybacks.
The stake in Arm surged 40% in value between its initial public offering in September and the end of December and is now the largest holding in SoftBank's portfolio. But as it is a consolidated subsidiary, that jump will not count towards SoftBank's investment gains in net profit.
