SoftBank Group Corp
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SoftBank Group Corp
Earnings Call Analysis
Q2-2024 Analysis
SoftBank Group Corp
SoftBank Group Corp's earnings call for the six-month period ending September 30, 2023, brought to the forefront the monumental success of the ARM IPO, representing one of the most significant events for the company. ARM's public listing not only marked a substantial milestone with a market cap of $52 billion but also highlighted its robust share price performance post-IPO. Despite this achievement, SoftBank reported a net income loss of JPY 1.4 trillion, a noticeable contrast from the IPO's success. This discrepancy underscores the complexities behind investment return metrics, and operational performance, showcasing the multifaceted nature of corporate finance within tech conglomerates like SoftBank.
The earnings call further detailed portfolio shifts, particularly the near complete divestment from Alibaba, with ARM emerging as a new value driver, hinting at strategic reallocation and risk mitigation efforts. Despite an increase in net asset value by nearly JPY 1 trillion, a sizable 'SoftBank discount' persists, reflected by the gap between the net asset value per share (JPY 11,196) and the actual share price (JPY 6,335). Efforts to bridge this valuation gap are ongoing as the company engages with investors to address both technical and fundamental valuation concerns.
SoftBank's narrative remains optimistic as it highlights that society's shift from IT to AI bodes well for ARM, whose chip shipments have grown exponentially. With ARM holding dominant market shares across mobile, automotive, and IoT sectors, the potential for further growth in these industries signals promising future prospects. Notably, the guidance for ARM's 2023 annual revenue projects a range of $2.96 trillion to $3.08 trillion, demonstrating confidence in ARM's continued robust growth despite a currently weak semiconductor industry.
Amidst the broader corporate developments, the Vision Fund also showcased resilience. Notwithstanding short-term volatility, there's an observable recovery in investment gains, bolstered by ARM's performance. Vision Fund 1 achieves a commendable investment return, having turned $90 billion invested into $104 billion, while Vision Fund 2 awaits further maturation, being a more recent endeavor. The Vision Funds continue to support portfolio companies in achieving growth, exemplified by 50 successful IPOs to date, amidst a challenging market environment that has yet to fully appreciate the intrinsic value of some of these firms.
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Thank you very much for waiting, everyone. Now we would like to start SoftBank Group Corp earnings results announcement for the 6-month period ended September 30, 2023. First, I would like to introduce today's participants. From left, we have Yoshimitsu Goto, Board Director and CFO; Kazuko Kimiwada, Corporate Officer, Senior Vice President and Head of Accounting Unit; Navneet Govil, CFO, SB Investment Advisers and SB Global Advisers; and Jason Child, Executive Vice President and CFO. Jason is attending through Zoom. Today's announcement is live broadcast or by Internet.
Now I would like to invite Yoshimitsu Goto to present you the earnings results and business overview.
Thank you very much for joining today. Good afternoon, everyone. As usual, we have Ms. Kimiwada, Head of Accounting, Navneet, the CFO of Vision Fund. And also, in addition, we have Mr. Jason Child from ARM -- CFO, ARM. But actually that the ARM just announced earnings this morning, Japan time. Of course, we wanted to have him in person, but because of the reason that we have him on Zoom today. So for this quarter, as an event for this 3 months -- 6 months period, IPO of ARM was the biggest event for our group. It was one of the biggest IPO in the market for this year and on September 14, 2023, went public.
This is a summary of the ARM IPO. $52 billion for the market cap upon listing, of which the 10% was offered to the market. So it was about -- close to JPY 600 billion, JPY 700 billion equivalents and also the market cap about JPY 7.5 billion level. After the share price actually has been moving robust -- in a robust way at the yesterday -- as of yesterday, also exceeding the price upon listing. So I believe that they made a good launch as a public company.
And this is an investment return on ARM. Of course, it's just a few months after the IPO, but -- also I'd like to share with you the MOIC. This is the metric used to describe the value performance of the investment relative to its initial cost and 3.2x but then was an acquisition, it was JPY 3.3 trillion. This was quite a large amount, of course, for SoftBank Group and as CFO, I was a bit nervous for this amount when it comes to the acquisition.
But still, we did have a very strong belief in this company as a dominant player in this market, therefore, that all the senior management actually was in sync in terms of making progress in the acquisition process in the short-term period.
In the past, we had -- we made a relatively large acquisitions, which is Alibaba and Sprint and even compare with those actually the ARM IPO also gave us a good investment return as of today already. Alibaba cost was very small. And as an investment project, it was a great investment. And the growth-wise, actually, that has already grown to JPY 8.5 trillion level. So it is making great progress. Of course, IPO it's just one of the milestones of the company's history and company's future. So we would like to keep a good expectation on ARM, especially ARM is the core of the SoftBank Group. And one of the most important strategic company for us.
So that we believe AI can be the good leading position or the core position of the group, which we are driving this AI revolutions and also the AI-related services. So very much expecting on and also supporting and also utilizing capability as well.
In the past 10 years, actually, there are IPO ranking, which you may not be very familiar. In the past 10 years, this is the top 15 IPO market cap, of which 6 of them are SBG involved as a matter of fact. So these are the good track record, which we would like to share with you and because Masa, our CEO has a great eyes to see through the future of the company, which is one of the advantage and also strength of the company, so we would like to take an advantage of such good eyes that we have in the company. And here on is the consolidated results.
So as for net income, negative JPY 1.4 trillion. So since the last -- the same time last year, we have negative figures here. And at the same time, actually, we have -- in terms of the transaction of ARM shares, actually, some of them are reflected to consolidate the P&L and some of them are not -- sorry affected P&L, but not affected the balance sheet.
So here that I can share the accounting treatment of acquisition of shares from Vision Fund 1, 25% equivalent shares were acquired from Vision Fund 1 in August. And along with this acquisition, realized gain was recorded at Vision Fund. But this was intra-group transaction, therefore, it has been eliminated in consolidation. So that that's not shown on P&L. But actually, in the other hand, increase in third-party interest is shown on P&L as an increase in costs.
From the balance sheet point of view, the same amount, third-party interest. This is also showing an increase in liabilities. Therefore, this transaction from the consolidated point of view, P&L has the -- in the balance sheet that the both has recording costs and liabilities. At the time of IPO, however, as you can see, about JPY 745 billion of the offering was made and we received the gain from there. But that's again after the offering remains as our subsidiary, so no impact on P&L point of view. And you may ask that where that goes to, and this goes to cash on balance sheet as a positive JPY 745 billion, and that -- it goes to also the capital surplus and the noncontrolling interest.
So the cash itself, of course, has been recognized as an enhancement of the balance sheet, which is in the -- in this accounting segments. And also to see the enterprise value of ours, you'll see the KPI in the following pages, which is net asset value. So there, we believe that we are reflecting this increase in value. The biggest KPI for the metrics for the company is something that we believe is in the net asset value. Therefore, together with net asset value and other KPIs I want you to refer to those to see and measure our company's value and also our safetiness of the company.
And here on is the gain and loss on investments, if you only see the amount, year-on-year last year, half year, half -- first half, seems about the same, but the content itself has been changed a lot. So as you can see, blue portion, this is Vision Fund comparison. So this term, this quarter -- this first half, minus -- negative JPY 583 billion, but the last first half was a negative JPY 4.3 trillion. So Vision Fund improvement has also been seen in this first half of fiscal 2023.
Last year, about the same time, we also recorded the gain related to settlement of Alibaba prepaid for the contracts. It was a relatively large number. So that was net-net to the last year's number. But this year, we didn't have a similar type of one-off gain and ended with JPY 963 negative billion. And also, I'd like to highlight that the reduction in losses at Vision Fund.
And here is the income before income tax. You see the number is quite different compared to the last first half. So the last first half was JPY 292 billion. And this first half is the minus JPY 907 million. So it looks like JPY 1.2 trillion equivalent of deterioration that you may ask what that is coming from. So number wise, under the consolidated accounting, there are many factors there. But the majority -- main part is from movement of the third-party interest in Vision Fund.
So last year, there was about JPY 1 trillion level of the positive impact to the third-party interest in Vision Fund. But this year, as mentioned earlier, for the ARM slides, JPY 226 billion negative impact. So this was actually the biggest impact to this time income before income tax. So this quarter has a bit different factor from the other quarters for the results.
In KPIs there are 3 important KPIs, net asset value. And second of all, loan-to-value from the credit point of view. So net debt and the assets ratio. And the last but not least is cash position. Compared to end of June, net asset value has increased by JPY 1 trillion, loan-to-value also remained in safety level. Cash position ended with JPY 5.1 trillion. So from the safetiness of KPI, we believe that these are all in very healthy positions and this shows the change in net asset value by breaking down. So this time, close to JPY 1 trillion increase for September end and we have a share price increase of JPY 0.5 trillion. And also, ForEx was positive for this time, net asset value point of view. In some others, that comes to JPY 16.4 trillion in net asset value.
This slide shows NAV for share and share price. What we would like you to look at is what they say, SoftBank discount. So actual stock price goes how close to the value. And with the ARM IPO, which was successful, the gap widened accordingly. As of end of September, net asset value per share was JPY 11,196, whereas share price was JPY 6,335. Going forward, we have to figure out how we can narrow the gap from a technical perspective and from more fundamental perspectives, and we will continue our dialogue with investors.
And if you go deeper into equity value of holdings, as you can see, since Q4 last year, you can see upward trend. And if you look further you will realize that Alibaba that led equity valuable holding was almost sold out by us. But then ARM is now a new driver of the value of holdings. Of course, SoftBank KK is contributing a lot, thankfully to their stock price.
And distribution of portfolio is shown here. As you can see, Alibaba obviously is the Chinese stock. And from a geopolitical risk perspective, we have to be very careful about the Chinese market. We have been managing portfolio for the last few years. And now from geopolitical risk management perspective, we are now in better position.
And talking about net asset value, again, since the 3 quarters earlier, you can see upward trend. Of course, market will move, and we cannot be complacent. But as far as our asset is concerned, you can see the positive trend recently. And loan to value, 25% is our policy from a safe operation perspective. And currently, we are at the level of 10%. As an investment company, maybe some people may say, you have to be more aggressive. You have to be more active. And the cash position, which is higher than JPY 5 trillion, this is another promise -- related to another promise, which is make sure that we have a 2-year worth redemption of the money. From that perspective, it's 5-year equivalent as opposed to 2 year for a debt redemption.
And impact of ForEx. How is it reflected on our finances. And from a consolidated perspective, consolidated net income or net loss was JPY 0.6 trillion. But as an investment company, we want to have you look at net asset value to measure our value and weaker yen is a positive for net asset value, which is plus JPY 1.9 trillion and almost a similar JPY 1.8 trillion equity is posted for the accounting.
Now let me talk about ARM. We are ready to talk more about ARM. For the last year, we kept saying that, sorry, we couldn't say a lot about ARM because ARM was in preparation for IPO. But now we are happy to talk about ARM openly. ARM-based chip shipment is shown here. Actually, this curve is exactly what we expected when we acquired ARM in 2016. Since then, I believe that the number of shipment has been growing exponentially. And actually, that was what we expected and illustrative image was, I believe, shown to you. And this is actual result, and I'm sure that our expectation and actual result is really overlapped.
So as the society move from IT to AI, everybody will need ARM chip. And I'm sure that ARM will meet people and society's expectation. And cumulative number of shipment to June 2023 was JPY 270 billion. There are 4 major markets where ARM can grow further. As for mobile, they already have 99% share. And for cloud and automotive, IoT embedded. For those areas, for cloud, for example, market share was 7% in 2020. And likewise, in 2020, they had a 33% of automotive market. And the share has been growing to, for example, 10% for cloud compute, 41% for automotive and 65% for IoT and embedded. And 65% is almost close to a dominant position.
And TAM is really big actually for each sector. And as you can see, there are a lot of opportunities out there. And as you can see on the far right, for cloud and automotive, over 10% of potential growth is expected, and that's really attractive.
And talking about ARM's target markets. In term of mobile or for clients, mobile devices for consumers like smartphones and tablets and also other electronics. And when it comes to automotive, incredible amount of chips are used in this market and either infrastructure, obviously, and IoT, like manufacturing and services, chips are necessary components. And an imaginable number of ARM chips are used in those sectors. In the past, AI, machine learning -- we're running in computers, but AI and machine learning are getting closer and closer to you to the edge. And AI will advance even further.
As you can see, a lot of industrial leaders announced to adopt ARM's design and ARM's chip. For example, Google's latest smartphone Pixel 8 is based on ARM's latest generation of CPUs, ARM V9. Also, NVIDIA announced a second generation of ARM-based 200 Grace Hopper Superchip. Renesas Electronics announced adoption of ARM technology for next generation of chips for autonomous driving. So like you see, ARM is enjoying great business growth.
And in terms of numbers, which was already announced by ARM, for quarterly revenue, the record revenue for the first quarter as a listed company. And multiple high-value licenses contributed to this great performance. As for the revenue, by the way, is partially different from what we disclosed before because of the reflection of the latest number to the numbers used for F1 filing for IPO.
Non-GAAP operating profit 92% year-on-year. So they are growing strongly. And annual revenue is providing guidance for the future annual revenue. 2023. According to the guidance, providing the range of $2.96 trillion to $3.08 trillion. As you know, the semiconductor industry is relatively weak. However, ARM including the second half, is expecting very robust growth there. And the guidance for the revenue -- not only revenue, but also provided the guidance on non-GAAP operating expense as well as non-GAAP fully diluted earnings per share.
Analysts forecast that the semiconductor industry will continue to recover, although trajectory is unclear. So we agree with such expectations. And here on, SoftBank Vision Fund status that I would like to share with you, including status. Here is the gain and loss on investments for the second quarter fiscal 2023, JPY 232 million combined. So was a positive after the last quarter, that also includes the gain on sales of Vision Fund 1, it's a large contribution to the total, mainly because of ARM.
And this is the gain and loss on investments quarterly basis. From the past -- well, environment is still tough, but still, if you see the quarterly is recording positive numbers from the previous term. So we believe that we have hit the bottom and also making a good mode towards the positive figures.
And also, this is the cumulative gain and loss on investments. Again, starting from the 3 quarters before, is making a robust recovery going on, we are hoping that these numbers also turn in positive and make a further growth, and that's something that we also need to see. This is the cumulative investment return on Vision Fund 1.
In summary, the left-hand side is investment costs, so it's about $90 billion invested. And so far, $104 billion made as a return. Exited orange portion has -- making a good contribution to investment return. That also includes ARM share transfer. The Vision Fund is private equity fund. However, now that the private company's portion becomes about 1/4 of the total, of course, and this includes that aiming for the IPO, which we expect. And at the same time, you see the public companies, the growth is something that we would like to expect further in the future. So we would like to bring numbers here to outperform further in the future from here.
Vision Fund 2, on the other hand $52 billion of the investment cost. And as of September 30, cumulative investment return was about $31.5 billion so that it's not yet a good performance. As I mentioned before, it was -- it is only about a few years -- a couple of years since the launch of Vision Fund 2. So we would like to take a little bit more time to see how that goes. Compared to Vision Fund 1, number of portfolio companies are larger. And we hope that each individual portfolio companies in Vision Fund 2 can find a good growth driver so that we will be able to see the good growth in their value by supporting them in various ways.
In the results so far from the Vision Fund. I believe that is to understand this number of IPO. And actually, since the inception, it has achieved already 50 listings. So if even you have IPO, because IPO is only the 1 milestone of the growth trajectory, but the company that can make an IPO means that the company sale has recognized well by the marketing investors so that we can also expect the good future. But at the same time, looking at the market status environment, may not always the same movement as we expect.
And in the past few years, we've been having a difficult environment, so that even they have an IPO, but still, the value has not been fully recognized in the market. So there are some portfolio company that not being able to show the good results yet. So out of these 50 companies, there are quite many that's not been able to fully recognized by the market yet.
And also on your right-hand side, this is the robust late-stage portfolio companies. As we can select portfolio companies here on this slide and also there are companies that we cannot show on the slides as well, there are quite many and we are preparing that they will be able to see on this slide some time near future. So the value -- total fair value of late-stage portfolio accounts for 29 billion or above. And that we hope we will be able to see the good growth on the way to IPO or upon IPO.
And this is the portfolio companies driving AI revolution. We are shifting to the investing mode. As a result, what are we aiming for? What is the objective? So before we go into that, let me explain to you what kind of portfolio company are there who can drive our AI revolution. So I'll give you 2 examples. First, ByteDance. I believe you are quite familiar with this company that they are the provider of TikTok, deploying AI algorithm to power the delivery of personalized content. And I believe they have a very good strategy and because too well, so that's why many of you are enjoying TikTok service.
So this AI algorithm providing the fresh and also something like content is provided to the customers. As you see on the below share of social media users using TikTok actually increasing almost double the numbers in the past few years. I don't believe that we can find many of such a content in the world right now.
On your right-hand side, this is the portfolio from India, a company called Swiggy. So this is the -- providing the online grocery ordering experience in India market, and they provide the kind of intuitive food and grocery ordering so that the AI is utilized to -- for the recommendation for the users, and I believe that's a good way of using AI to build their business strategy.
So AI investment for the second quarter, so there are a combined of the investments from SoftBank balance sheet and Vision Fund. In total, 1.5 billion. So last quarter was 1.8 billion of the investment of funding Vision Fund 1, 2 that ARM funding SBGs. And further, if you compare with the previous quarter is growing -- the number is growing almost double or triple.
So about 2 years ago -- 3 years ago, we actually investing like JPY 1 trillion per quarter. So compared to that, this looks quite modest. However, compared to last year, we are increasing a number of the invested amount. So we are becoming more active.
And you may see some increase in the investment by SBG. From the strategic point of view, it is important from which entity that we are investing. So basically, in principle, our investment activity is done by Vison Fund, that's our basic understanding basic principle but invested by Vision Fund also requires the good financial return, how can you receive a financial return. But before then, we may want to think more harder or deeper to certain companies. If that's a company, probably rather not from the Vision Fund, but from the SoftBank Group balance sheet and see that how the company grows.
So we're having a lot of discussions where the entity to invest in these companies. So we are investing in AI, and that's the main strategy for our company. And for Vision Fund, it has a term. Also it may -- basically it's a minority investment. So there are some difference in between the investment by SBG. But the investment by SBG, actually as Masa -- by year -- almost more than a year ago that he is not showing up on this stage for the earnings, but he's been very much devoting himself and involved in the discussion, how and what is going to be the changes in life cycles or life -- people's life from the AI revolution, and we would like to be the first runner for such changes or the revolution. For the first quarter, second quarter, from the since we have a little bit more investment from the SBG compared from Vision Fund.
And what are those investments? So I pick up 2, 3 examples for you. First is the [indiscernible]. So they have a very high-quality autonomous driving technology and so that can optimize supply chain, delivery route and energy efficiency. By having these developed because truck industry does carry a quite huge issues, problems for a long time. But because this industry is also essential for the market and people so that hasn't been able to fully resolve the situation.
So for example, driver shortage, efficiency of uptime. And if you have a longer time of working, risk increase, that leads to safety issues, safety concerns and also that leads to the CO2 emission at transportation cost. So this company -- this business may be able to find a dramatic solution for such issues.
And second is the company called [indiscernible]. This is the company convert pallet handling to autonomy with driverless forklift. So how efficient can you handle the pallet is important. So pallet itself is controlled autonomously from AI and robotics solution utilizing a driverless forklift. And not human driver so that it can change the speed in an efficient way and also can move even wider has already gone public back in 2017, but this October, [indiscernible] takeover a bit that we have acquired 71.4% of shares so far. So this has already been utilized in many use cases in a global basis. And also, we are very much excited for this company of the future.
And next, Mapbox. I think Mapbox is getting attentions gradually on the media. So they provide customer navigation and map application for flexible use by leveraging AI, location information and navigation information, they provide such information. And currently, over 700 million users are using Mapbox maps. And obviously, car manufacturing companies like Toyota, GM, BMW and [indiscernible] adopted this map service. And not only providing a map but also they maximize delivery efficiency by optimizing delivery routes and by real-time visibility of fleet operation. So transportation management company is what you may want to call them in a way. So let me show you a short video clip here.
[Presentation]
Now, of course, Masayoshi Son is leading those investment activities. The other day, we had a function called SoftBank World and Mr. Son stood himself for the first time in a while to make a keynote speech. And if I may summarize what he said. SoftBank Group, I believe as far back as 2016, at General Shareholders' Meeting. It was the first time when he touched upon singularity. And he said that singularity will arrive within 10 years.
And the term singularity back then was something that we've never heard of before. And it's been 7, 8 years since. And now AI, especially Gen AI is exponentially transforming the world and so he committed himself again to leading such world. GPT 4 can pass the medical exam as they claim. Anyway, within 10 years, 10 times more intelligence of the total human being shall be delivered it set. So that's AGI or artificial general intelligence.
While Intel CEO says something similar according to a Nikkei article this morning. And then next comes ASI, which is artificial super intelligence, and we assume that within 20 years, 10,000 more intelligent artificial intelligence will be delivered, 10x more than the total sum of the people's intelligence. So ASI shall come in 20 years, we think. So first, within 10 years, AGI will come and within 20 years, ASI should come.
So we have to come backwards and think what kind of solutions we can deliver. And when you think about that, you have to first identify challenges and issues to be solved. And big data, private data and based upon the training on those data, AGI will do inference. And then the AGI will start thinking what's happening in the world. And all industries can be completely revolutionized by this engine.
So AGI gets trained real-time, AGI make inference real time and they repeat the cycle. And as they learn more, they get smarter. 7, 8 years ago, we started saying that AI will redefine all industries. And that was AI. When it comes to AGI, revolutionize, AGI will revolutionize all industries. What specifically AGI can do? Well, in 360 degrees world like all industries.
Maybe if I may pick up some industries or services that you feel are relevant, mobility, health care, services, finance, logistics, manufacturing. In those areas, there are things that you wish to have in the future. For example, in terms of mobility, accident-free autonomous driving.
Driverless driving can be dangerous, people say. Of course, they may cause accidents but far less than what a human makes accident. And for logistics, data driven supply matching can be delivered. And just in time by the second. AGI will make them possible. So list goes on and on. With AGI, industries will be completely revolutionized.
That's why as a SoftBank Group, we want to make us the most AI-empowered company in the world. And by doing so, we can generate a lot of services and products. And also we can help a lot of businesses get connected each other. So we want you to associate AI with us.
Now, last but not the least, let me talk about financial strategy. It's been 6 months since the fiscal year start, and we remain the same in terms of financial strategy, adhering to financial policy, financial management to address both offensive and defensive. For the financial policy, again, stay the same.
We want to share with you what those numbers mean to us. LTV 25%, even though it exceeds, we are not going to be in trouble. What we mean is if we have LTV 25%, we are operating in a very safe way. So it's not like close to 25% or far away from 25%. And for bond redemption in cash, we have a 5-year worth now. And you may say it's an efficient way of spending money. But if you want to compete in a very competitive market, you have to learn from textbook and also you have to put your activities in practice, your policy in practice.
And -- this financial operation is organically connected to the financial policy. Of course, we will invest while we are protecting ourselves. In order to grow our net asset value, existing portfolio is not enough, monetizing existing portfolio and then the gain we get should be redistributed to new investment. And of course, we have to think about capital allocation, shareholders' return and financial stability.
For example, in terms of return, share buyback and more dividend, those can be returned to shareholders. So for the credit investors, that's keeping credit safetiness is the return to credit investors. So we need to make sure that we have a good balance in investing new investment for company's growth.
We have JPY 5 trillion in cash. And why don't you start buying your shares. And why don't you increase dividend, you may say. Yes, I understand your opinion, but we always think about that. But when and how, we will keep watching how market grows, how our business grows and figure out the best timing and best way for returning to investors. We want to run our business so that our investors will appreciate our performance and return. And no company has done JPY 4.5 trillion worth of share buyback in the last few years. And again, we remain serious and figure out when is the best timing to return to you.
To summarize, ARM IPO successfully completed and they reached one of their milestones and they are ready for next round of the growth. And next, net asset value, which is one of the most important key indicator increased from JPY 15.5 trillion to JPY 16.4 trillion. Third, we carefully resumed investment. Last, but not the least, Vison Fund looks to increase mid- to long-term value. And SoftBank Group and SoftBank Vision Fund will keep working to maximize the value of the portfolio. Thank you very much.
Now we would like to take questions. First, we would like to take questions from the floor. Please wait for the microphone and start with your name and affiliation. For those who are on Zoom, please access to the Zoom as we informed you in advance. And please refrain from connecting to other live stream to avoid any echoing. You can start pressing raise-hand bottom. If you wish to make any question. If you like to withdraw your question, please, press lower hand button. We would like to ask -- for those who are on Japanese Zoom, please make your question in Japanese. We would like to take up to 2 questions per person so that we can take questions from as many people as possible.
Now we would like to take questions from the floor. Please raise your hand if you have any.
Thank you. My name is Goto from Mainichi Newspaper. WeWork had filed bankruptcy and how the -- what is your impression and also any impact to SoftBank Group business itself?
So top filing Chapter 11 has happened. First of all, I'm very sorry to hear that. As a company, we need to accept this reality and also need to learn the lesson from this for our future investment activity. What was wrong -- what went wrong from our investment decision, and that needs to be improved going forward. So that became a very big homework for us. At the same time, from the accounting perspective, because value has been decreasing, and that being recognized every quarter basis in the past. And we've been valuing evaluating in a very conservative way so that as of now that there is not any big surprise or anything for the accounting perspective as of today.
Kimiwada-san, do you have any comments?
No.
Then I have another question. How do you see the management responsibility of Masa?
As CEO, he is taking responsibility for everything. Of course, that's the 1 idea. As for WeWork, he was, of course, involved in the decision-making. But I believe this is something that we need to accept as an enterprise as a company. So we all need to learn this from here so that we can make a full effort for the success of the Vision Fund. And right now, that Masa is involved and devoting himself for the new chapter or the new projects, for the SoftBank Group, and I believe that it's even more important for us him to make such a good involvement in the business planning for the SoftBank Group.
Any other question from the floor?
I am Jay from Bloomberg. I have a question. The pace of investment, if you could elaborate on that? $1.8 million for the first quarter and for the second quarter, $1.2 million. So I don't feel it's very speedy investment, if I may. So how fast or how slow you are going to invest going forward and an investment by group investment by Vision Fund, what is the ratio that you have in your mind?
Thank you for the question. As you can see on the slide. Last year's Q2, Q3, Q4, that was $0.5 billion, $0.5 billion, $0.5 billion, now this year, $1.8 billion and $1.5 billion for Q1 and Q2, respectively. So it's tripled amount. Some people say, wow, that's big. And from SoftBank perspective, it's too small. So it depends on whom you ask. And we are not just making money.
When new investment opportunity comes up -- maybe ticket size may be bigger. So the amount of investments may be bigger for the rest of the year. But again, we are very selective when it comes to investment opportunities. So the pace might be slowing down. So it depends. So investment -- it depends on investment opportunities. But as you know, we have plenty of cash position. So we are ready for whatever big investment opportunities you think -- we think it's good.
And talking about investment by fund, investment by SoftBank Group, the ratio or percentage, we don't have any rule or anything like that. Rather than thinking about whether we can get a good economic performance soon or not, I think we want to think together with SoftBank Vision Fund. Like I mentioned earlier, if there are investment opportunities which we think we should work with them and help them, then SoftBank Group may invest in those businesses. And in other cases, if SoftBank Vision Fund, we think it's better for them to invest then let them invest. So there is no specific rule. But it depends on what expectation we have from those investment opportunities.
Thank you. Any other questions?
My name is Yamaguchi from Mainichi Newspaper. So as for the WeWork bankruptcy. So Masa's eyes or the judgment, some investors may have a doubt on his eyes or his judgment. Maybe he had intuitively fell in love with the CEO or the founder. But would you change or improve the way of judging the investment target?
After the WeWork investments, there were times that we do commit the investments for -- following investments for the WeWork. But at the same time, we also mentioned and committed to the market that we are not going to do the rescue investments for the portfolio companies. And after then, we've been clarified our disciplines and also changed and updated the investment criteria so that not only from the one-angle decisions -- or one-angle criteria for the decisions for the investment. But we are brushing up those criterias every quarter basis. Navneet do you have additional comments?
Thank you, Goto-san. I agree with what you said. Our focus right now is to preserve our preferred capital in WeWork. And as Goto-san said, there are no incremental investments. And also, as Goto-san mentioned, most of the exposure has already been written down. So there's no residual exposure, only the equity exposure based on the stock price that was trading at September 30.
I have another question. 25% of ARM share that you bought back from Vision Fund, and I believe that you have bought in quite high price. What was the reason? Is because Saudi LP is in the Vision Fund and there were loss. I think there must be some reason that you bought with that price.
First of all. We, SoftBank Group is very much expecting the great future of ARM. Vision Fund, of course, like you said, we have outside LP. So this is an independent fund. Of course, we invest in this fund, but we are above 50% and remaining 50% of the external LP. And based on the good discussion and agreed upon the price and both are convinced. And the fund site is satisfied is the price. We, SoftBank Group also happy and agreed with the price considering the future.
I don't discuss any detail or agreements or the detailed discussion we had. That's the private discussion. But how that's going to be looked from outside from analysts or others, how they look at the share after this transaction, how these recent analysts seeing the price for ARM. Even with the experts of those pricing or the analysts, I think that they are quite convinced.
And my last question on WeWork once again. So what was your final investment ratio to WeWork?
Equity debt in combined, about JPY 14 billion.
Ratio, please? Ratio. What was the investment ratio in WeWork?
How much percent ownership? Economically, 70%, yes. And cumulative loss $14.3 billion as disclosed. Please look at the disclosure. Thank you.
Thank you. Next question on the venue?
[indiscernible] Nikkei Newspaper. Second -- 2 questions. First, AI strategy. I'm not -- I don't think that you're going to make AGI, but from manufacturing and financing and manufacturing and AGI will have an impact. So services and products, SoftBank Group may want to develop them?
Thank you for your question. We are not ready to share with you the progress of our discussion internally, and it may take time before talking to you about what we want to do. Anything can be possible at the moment, to be honest. Obvious ones, of course, and businesses industry that we don't have as our parts, if you will, in our portfolio. And if there are partners -- potential partners that we can work with to drive AI, of course, we will think about that, whether it's service or product Sometimes, we may take a lead in developing those service unit products. But we are still struggling and figuring out and give us some more time before talk openly about our specific AI strategy.
The next question, different color. SoftBank and Mizuho, which is one of your friendly partners and Rakuten that is kind of your competitor. Mizuho Financial Group for securities announced to make additional investment to get closer to Rakuten and SoftBank [indiscernible], Yahoo! and PayPay [indiscernible] are also Mizuho are working with. So Mizuho from capital perspective and from a business perspective, they are getting closer to mobile operators like Rakuten and SoftBank and other mobile leaded service companies, what do you think?
Well, to us, Mizuho Group is a main bank group, and we have a very strong relationship. And we have 100% trust each other. In the meantime, Mizuho, of course, is one of the prominent financial institutions in Japan, and they have a lot of customers, the businesses. So it's up to them to make their best decision. And the relationship between Mizuho and us, after the announcement of additional investment in Rakuten, I don't think it will change anything about our relationship.
Thank you. Any other questions, please?
Morita from Toyo Keizai. I have 2 questions. First, EPS And also the discount for the NAV. So you mentioned, and it doesn't really narrow down. So earlier, you said impression-wise you don't really answer for the narrowing the gap of the discounts. So for the SoftBank discount, do you have a good understanding on the factors or reason for these discounts? And you are preparing for the solutions or you haven't done any of the methods or anything, but hasn't been able to narrow down?
I believe there are issues in 2 ways. One is a real issue and the other is technical issue. So the -- for example, short-term period buyback can be 1 technical solution. But many of the company who has done the buyback and looking at their trajectory of share price, it is just a onetime. And I can understand that's why. So important thing is the real solution. So we need to have a good understanding by the market on our strategy.
In strategy from the investors' point of view may not be enough. That's 1 angle. For that, we do need to improve our strategy itself. And second angle is that we have mid- to long-term vision and try to do that in advance. So try -- and maybe we are too early or too fast so that it may not be fully clearly understood by the market, the investors.
So I think there are 2 things. And maybe both angles exist there. And to solve the 2 issues, I believe we need kind of the disclosure approach from the management point of view. And also even more important is to show you the results as soon as possible. So ARM IPO. This is 1 good milestone. And even after the IPO, we've been seeing a robust move.
And now that we're seeing further development in our business. And then I believe that you're seeing the results so that we'll be able to narrow the discount. So we need to show you the results. That's 1 thing. And also me as a leading investor relations, probably we need to have a deeper communication with investors so that investors can understand our strategy. And we need to take more time on that. That's another solutions and issue that we have to think about. So how we solve this discount. I think that these are -- the thing that I have said earlier is something that we need to do in total.
I have a second question. Masa's view on the group management, how they prioritize? How they position? So -- because recently, Masa is actually making a message to the company, which does or provide the Generative AI. Then it's not really the investment business anymore but rather like to do -- because we have a contest in the companies for the Generative AI and the Yahoo! AI, so that he is rather focusing more on the operating business rather than investment business. That's how I feel. But at the same time, you have investment business as well. So what is his mind? What is his focus? Has his focus been changed or the way it has changed?
I don't believe he has changed his focus. Being an investment company here, but as a business person, Masa is 1 business person and company. Also, we are creating the business. As you can see from this slide, the first, our company has to utilize AI. We really using AI. That's the kind of a question back to the companies back to the employees. That's why that we have internal contest or competitions amongst employees to come up with the ideas for the AI use case.
So for this agenda, request structure systems, probably that, that can be penetrated in our company, and that can be a good power to compete against our competitors. That's the kind of first step. That's the one that we first need to focus. And that's the agenda that we are investing in and the group companies are growing along with the utilizing of AI. So I think that every leads up to this -- his comments here. And that's how he sees the AI right now. Thank you.
Any more questions?
Watanabe from Asahi Newspaper. In your presentation, you mentioned geopolitical risk. So I have a question around that. I think your increasing investment in Israel backed by investment by Saudi Arabia partially. So at the moment, how do you position yourself in this current geopolitical environment?
Navneet, would you like to comment on that?
Sorry, could you repeat the question?
Yes, about investment, through Vision Fund, investment in Israel, I think you are increasing investment in Israel. And looking at the current situation, geopolitical risk is growing. So I wonder if SoftBank Vision Fund portfolio will be impacted? Or would you like to reconsider strategy? Or would you expect some short-term impact from geopolitical risks in the Middle East?
So actually, it turns out in the September quarter, we made an investment in an Israeli company called Cato Networks in cybersecurity. And as Goto-san said, we continue to look for AI disruptors all over the globe regardless of where the location is. Of course, some of these geopolitical developments are -- there's a lot of human tragedy there. Our view is that our portfolio companies are -- have -- we have a long-term investment horizon, 3 to 5 years. And companies that are disruptive, that are scaling will do well no matter where they are. So whether it's Israel or other areas, we continue to look at those.
Thank you very much. So let me see if I understood correctly. So you don't have any rule in terms of the place or location in terms of investment. So whoever or wherever it is, if it's a disruptor -- AI disruptor, you will continue investing. So at this moment, you don't have any intention to change your strategy?
If I may add some colors. Let's say, China. We are not actively investing in China. But there are a lot of great portfolio companies that may have country risks. Sometimes if you think that one day, it's okay and next day, the business is bad. You cannot invest in such companies. So you have to control yourself, manage yourself in terms of where to invest in. Thank you.
Any other questions? If not, then that's all for the questions from the floor, and we would like to move on to the question from online participants. Please refrain from connecting to other live stream to avoid any echoing. And once again, if you are on Japanese Zoom, please make your question in Japanese. So first, Mr. Nakagawa from NewsPicks..
Can you hear me. Okay? This is Nakagawa speaking.
Yes.
I have 2 questions. First, SBG investments. So you mentioned a bit. So world is moving to AI and you like to invest from SBG for on those that can be an important part of the AI revolution. So important part, can you elaborate a little bit? How do you decide when it comes to the investment from SBG itself?
Good question and also a difficult question as well. It's -- we haven't been clearly defined that yet. But after the discussion, those companies that we are investing from SBG, falls under such criteria. So that's -- may not be clearly answering to you. But I believe that more close to the reality, I believe. So I said how the road is going to change. And there are 6 segments that I had the pace, which is going to be changing. And each segment, we believe AI is going to be providing and leading the service and business.
For example, just 1 example on autonomous driving. It's -- we are having a clear view in the parts that needs to that change is something easier to understand. For example, Mapbox is also the same. So from that sense, we are taking 1 by 1 and which entity we should be using for the -- as an investor. So we don't have a clear line between those 2. But at the same time, we need to make an answer. So we are thinking hard and discussing.
So since last time that you start investing from balance sheet of SBG and also I bring this up but mainly logistics, the 1 that you are looking at. So then that I have a question that are you into the logistics business?
So you saw the video -- sorry, that slides on [indiscernible] sake that we are investing from SBG. And also, it's easy to understand sector compared to the others. So relatively, easy to address -- agenda is easy to address, but that's not everything. Actually, we are trying to see bigger change or a bigger shift in other sector, too. So we don't.
And the last question from me. So investment from SBG project has been covered by media. Is this the same thing with the investment by SBG. And also Sam Altman, CEO and Masa we heard that they are trying to start business together.
I have nothing that I can answer to that question.
Thank you very much. In the interest of time, we will take the 1 last person to give us a question before closing. From Bloomberg, Grace-san, please.
Grace-san from Bloomberg. I have just 1 question, if I may. You mentioned that you want to be ready for both defensive and offensive. From that perspective, priorities for SVF and SBG or relationship between SVF and SBG, I want to know more. Because for investors in SVF, in the future, if there are cases where bigger return can be expected from SBG's investment rather than SVF's investment. So again, for your stakeholders, for your investors, could you elaborate on the relationship between SVF and SBG and priorities?
Vision Fund, obviously, we have 1 and 2, and there are other third-party investors for Vision Fund 1. For example, for Vision Fund 1, no new investment at all. So only new investment is made by Vision Fund 2 as far as fund is concerned. So third party and Masayoshi are one of the investors. At the moment, there is no issue of conflict from SBG's perspective. So which party should invest in who. We will have a better discussion to address potential conflict.
So going forward, Vision Fund 2, eventually, you may shrink investment by Vision Fund 2 going forward. Depending on environment, depending on the market. At the moment, there are no third-party LPs. But eventually, maybe there might be LPs coming into Vision Fund 2. So going forward, investment by the group, investment by the fund, we will run concurrently going forward for the time being at least.
Thank you very much. That was our last question. So this concludes SoftBank Group Corp. earnings results announcement for 6-month period ended September 30, 2023. Thank you very much, once again. The video footage of this meeting will be distributed on demand from our corporate website. Thank you very much once again for joining the SoftBank Group Corp. earnings result announcement for 6-month period ended September 30, 2023.