The Little-Known Tech Giant That’s Quietly Taking Over The World
There’s been much talk lately of Alibaba Group Holding Ltd. (NYSE: BABA). On Nov. 4, the company announced its first earnings call since going public, and it went pretty well. Company shares ended up 4.2% for the day, an increase of 14% since the company’s debut on the New York Stock Exchange.
It’s safe to say shareholders are happy with the performance — especially SoftBank Corp. (OTC: SFTBF), an ambitious Japanese firm with a 32% stake in Alibaba. At yesterday’s closing price, SoftBank turned a $20 million investment in BABA into just north of $91 billion.
#-ad_banner-#While it’s widely considered to be a telecommunications giant, SoftBank looks more like a venture capital firm — with an investment portfolio spread out over more than 1,300 companies.
SoftBank’s CEO Masayoshi Son even outlined an aggressive long-term acquisition plan to invest in 5,000 companies by 2040. Presently the firm is on track to reach that target and has enjoyed plenty of success along the way.
It’s no surprise that SoftBank is Japan’s second largest public company by market capitalization. Given the latest success in Alibaba, the company is in a great position to continue fueling aggressive growth through acquisitions.
Before I tell you about SoftBank’s even more exciting recent investments, let’s examine the company’s investing track record and the ambitions of its billionaire CEO.
Masayoshi Son was an early investor in E*Trade Financial Corp. (Nasdaq: ETFC) and Yahoo!, Inc. (Nasdaq: YHOO) through SoftBank — eventually allowing SoftBank to amass a 43% stake in Yahoo Japan Corp. (OTC: YAHOY), the country’s leading search engine.
In 2006, SoftBank bought Vodafone Japan. Presently known as SoftBank Mobile, the company has become Japan’s third largest mobile carrier by subscribers.
Fast forward to 2012 when SoftBank completed its most ambitious acquisition yet. The firm scooped up the third largest mobile carrier in the United States, Sprint Corp. (NYSE: S), for $21.6 billion. This is the largest Japanese takeover of a U.S. firm.
Just last month an article published in The Wall Street Journal speculated that Masayoshi Son now may be looking to buy Vodafone (Nasdaq: VOD) as a whole (on top of its significant stake in Vodafone Japan). If this ends up playing out, then SoftBank would own the world’s second-largest wireless operator.
As if the aggressive expansion effort in telecom wasn’t enough, it looks as if they’re trying to build a content arm as well. SoftBank was recently in talks with DreamWorks Animation SKG, Inc. (Nasdaq: DWA) about a potential acquisition or partnership. Though it doesn’t sound as if talks went anywhere, the recent positioning highlights some of their ambitions.
A quote from their CEO says it all in my opinion, “I am a man, and every man wants to be number one, not number two or number three.”
Moral of the story: There’s some serious growth going on at this company, and they are redefining themselves with each acquisition.
It’s not just the CEO who’s profited handsomely (although he is Japan’s richest man according to Forbes). Shareholders have seen north of a 175% return over the last 5 years.
So what’s next for a company following what could go down as one of the most lucrative investments in recent history? For SoftBank, the answer is simple – keep expanding their empire.
The Next Frontier
SoftBank is showing that they’ll keep the momentum going by looking for the next big game-changing investment.
The target: India.
India has been the best performing economy of 2014 and SoftBank aims to capitalize on that growth by investing on the ground floor. In a shocking plan unveiled by the maverick CEO, SoftBank announced a plan to invest $10 billion in India. They look to have gotten off to a nice start by funding two innovative business models.
First they invested $627 million in what some are calling the Alibaba of India: Snapdeal. It’s the largest online marketplace in India and SoftBank is now the largest shareholder. Some other notable investors in Snapdeal include veteran e-commerce firm eBay, Inc. (Nasdaq: EBAY) and one of the most successful investment firms BlackRock, Inc. (NYSE: BLK).
Along with Snapdeal, SoftBank recently invested more than $200 million into another game-changing company in India: Olacabs. Olacabs is in the middle of a land grab between Uber and other ride sourcing services. According to the company, Ola is the most popular mobile app for cab booking in the Android store.
As Uber is a private company, their financials aren’t publicly available, but it’s safe to say they’ve seen an astronomical growth in demand for their services. If Olacabs can even somewhat mimic that in India, then it should pay off well for the early stage investors like SoftBank.
But those two acquisitions put the company’s invested total just short of $1 billion. If Masayoshi Son follows through with his investment plan, then there’s still $9 billion in potential investments left to go in India.
What the future holds for SoftBank is unclear right now. There are many moving parts to this story, and the company could go many different directions. There are a few things that can’t be ignored though.
1) SoftBank holds 32% ownership of the largest online marketplace which should help to provide a consistent revenue stream moving forward.
2) The company wants to be a giant. SoftBank has its eye on the prize. It looks like SoftBank could soon be a top international wireless carrier if it continues to build out its network. Beyond its core revenue, the company is making big bets in India. This could be a good opportunity for them to capitalize on another Alibaba type opportunity.
3) SoftBank’s CEO is one of a kind. It’s not often that you can invest alongside any nation’s richest man, but through SoftBank’s stock you can. This may be one of those bet on the jockey, not the horse situations. He’s largely responsible for the company’s direction and so far this has proved to serve investors well, with a 322% 10-year return.
Risks to Consider: SoftBank has a high amount of debt on their balance sheet so there is risk that their stock could get punished should the cost of servicing the debt be too burdensome. Also SoftBank has a high risk, high reward business model and very aggressive expansion plans. The stock would likely take a hit should they fail to execute on their new acquisitions and investments.
Action to Take –> SoftBank has a big runway ahead in terms of expansion, which could prove lucrative for investors. I’ll be keeping a close eye on how well they manage their existing portfolio of companies, and any potential mergers and acquisitions. The company just announced a lackluster quarter of earnings thanks to Sprint and the stock sold off a bit. Although the stock is down more than 20% from its 52-week highs, I would wait for another quarter of earnings before building any significant position.
SoftBank is investing in the newest game-changing opportunities, and that’s paid off well for shareholders. That same idea of looking for disruptive companies to invest in has led our analyst Andy Obermueller to gains of 89%, 92% and even 310% in a year. StreetAuthority compiled a list of the hottest upcoming trends called “The Hottest Investment Opportunities For 2015.” For more information on the game-changing opportunities that could crush the market, click here.