TOKYO – Like the genie in Disney's "Aladdin" film, Alibaba Group Holding granted the wishes of SoftBank Group.
SoftBank expects to obtain consolidated pre-tax profit of 1.2 trillion yen ($ 11.1 billion) for the April-June period on the proceeds from Alibaba's share sale and financial derivative profits. The figure represents around 70% of pre-tax profit for the fiscal year to March, which reaches around 1.7 trillion yen.
From the expected pre-tax profit, Alibaba produced accounts for 460 billion yen and derivative profits for 740 billion yen. SoftBank started complex financial transactions in 2016 which allowed it to add this amount to pre-tax profit.
Part of derivative profits largely cancels derivative losses recorded by SoftBank in the past.
Masayoshi Son, chairman and CEO of SoftBank Group, said he "did not oversee the profits that appeared in the book" in directing the company. But the impact of Alibaba's share sales is not small. In fact, they helped move SoftBank to a position that surpassed Toyota Motor as Japan's highest profit producer.
Seeing 1.2 trillion yen in profit alone may downplay Alibaba's total contribution. More importantly, SoftBank's shareholding on the Chinese internet giant allows SoftBank to obtain large amounts of capital.
SoftBank in 2016 raised $ 10 billion by selling part of Alibaba's shares and by taking other actions. Of this amount, $ 3.4 billion was obtained by directly selling shares to Alibaba and investment funds; the remainder is obtained through financial derivatives.
SoftBank collected ¥ 842.3 billion for the year to March 2018 and ¥ 161 billion over the next 12 months, increasing Alibaba's shareholding every year.
SoftBank has been able to increase this much thanks to the large unrealized profits on Alibaba's share ownership. From Alibaba's market capitalization of more than 48 trillion yen, SoftBank Group can claim 14 trillion yen.
All of this came from the investment of 2 billion yen that Masayoshi Son made on Alibaba in 2000. Value bets at Jack Ma's startup.
SoftBank is expected to continue to bank on Alibaba's share ownership. "I want to be the leader of the AI revolution," Son said at the SoftBank shareholders general meeting in June. The Chairman has added many of the world's leading artificial intelligence companies to the SoftBank investment portfolio, a strategy that he will share with and which is important for Alibaba SoftBank's share ownership.
SoftBank has not recovered what has been invested in other target companies, but there are signs that SoftBank Vision Fund, which manages around $ 100 billion, can begin to return money in the not too distant future. Slack Technologies, which operates chat tools at work, and Uber Technologies was recently listed on the New York Stock Exchange. We Company, which operates WeWork, an office sharing company, and DoorDash plans to register a food delivery service in the near future.
SoftBank also plans to prepare a second Vision Fund.
On the negative side, a subsidiary of SoftBank Group Sprint, U.S. communications company. the worst, continued to experience difficulties closing the merger with rival US T-Mobile. Authorities from a number of American states have filed lawsuits to stop the merger. Meanwhile, Arm Holdings, a British semiconductor maker that SoftBank bought for 3.3 trillion yen in 2016, is barely ready to return SoftBank's investment.
SoftBank clearly relies on Alibaba, which accounts for almost half of SoftBank's 26 billion yen value in share ownership. His fate depends on finding another Alibaba before his current genie stops granting his wishes.