(Bloomberg Gadfly) -- SoftBank Group Corp.'s earnings have been a little unstable of late.
Buckle up, though. It's about to get a whole lot more bumpy.
Masayoshi Son is plunging his empire into the great unknown. His decision to pull SoftBank's U.S. telecom firm Sprint Corp. out of merger talks with T-Mobile US Inc. is enough to make Sprint's investors sweat, as Gadfly's Tara Lachapelle outlined earlier.
But there are worries for shareholders back in Japan, too. While Son's $97.7 billion Vision Fund is set to be a dominant topic in coming years, SoftBank's income statement in recent quarters looks as unstable as a ship in a storm.
Take the Japanese conglomerate's investment in Alibaba Group Holding Ltd. A "collar transaction embedded in a variable prepaid forward contract for Alibaba shares" explains how SoftBank delivered a 508 billion yen derivatives loss in the six months through Sept. 30. That's right, SoftBank's Alibaba stake turned out to be a $4.4 billion albatross for this period, but that figure will probably swing wildly as SoftBank revalues it every quarter.
Then there's Nvidia Corp. SoftBank took a chunk of the graphics chip designer earlier in the year, helping it post a healthy non-operating profit in the June quarter as Nvidia's shares rocketed. Its stock continued to climb in the most recent period, but that stake is being handed over to the Vision Fund, meaning SoftBank shareholders will reap far smaller rewards.
ARM Holdings Plc, the British semiconductor company that SoftBank bought 12 months ago, will also be reassigned to the Vision Fund. This may not be such a bad thing for SoftBank shareholders since Son has somehow managed to turn a decade of quarterly profit into two straight quarters of operating loss, widening most recently to 7.86 billion yen.
SoftBank derivatives loss
508 billion yen
Even SoftBank's mainstay domestic telecom unit hasn't been able to offer stable earnings or margins, which is significant because this is the business that provided one-third of sales and two-thirds of total operating income last year.
For investors less concerned about the P&L, it's worth considering SoftBank's cash flow statement. A look at the past decade of quarterly free cash flow shows just what effect Son's borrow-and-spend approach has had.
As the Vision Fund kicks into high gear and SoftBank switches to Plan B for Sprint, there's little chance earnings instability will dissipate. Perhaps some shareholders are OK with that, betting that the long-term future of Son's strategy outweighs any short-term noise. But anyone deciding to stay invested in this vision better have a strong stomach.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.
To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.
©2017 Bloomberg L.P.
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