Softbank (OTCMKTS:SFTBY) is a company whose business and investments touch nearly every corner of the globe. Its Vision Fund is the largest private equity fund in the world and grabs headlines, both good and bad, on a regular basis.
Bloomberg recently wrote that founder “Masayoshi Son has blundered on WeWork, Greensill and Wirecard, but SoftBank has still become one of the world’s greatest billionaire factories.”
More recently, the news has been positive. Actually, it’s fairer to say that the news has been mixed. On the one hand, profits are soaring. Softbank posted record group net profits of $45.88 billion for the year ended March 31, 2021. That eclipsed Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) and its $42.5 billion. Some $37 billion of that profit was attributable to Softbank’s Vision Fund.
Yet, those record profits haven’t translated into rising share prices for the company’s SFTBY stock. There may be a few reasons for the seeming contradiction. Just last year Softbank posted a nearly $9 billion loss (JPY 962 billion). So, there are clear volatility concerns. Same goes for tech valuation worries.
If Softbank’s Vision Fund golden goose is to continue to lay golden eggs, then currently unlisted portfolio companies will need to pay off in the future.
In any case, let’s look at the “Golden Egg” tech stocks which have succeeded and may yet succeed.
- Uber Technologies (NYSE:UBER)
- Qualtrics International (NASDAQ:XM)
- 10x Genomics (NASDAQ:TXG)
- DoorDash (NYSE:DASH)
- Coupang (NYSE:CPNG)
- Nvidia (NASDAQ:NVDA)
- Zymergen (NASDAQ:ZY)
Tech Stocks: Uber Technologies (UBER)
UBER stock is garnering a lot of attention these days. Positive results including a Q1 EPS beat have led Wall Street to give it a near unanimous buy rating. Softbank’s investment into Uber has been a rocky one, and looked at times to be doomed.
Softbank had invested heavily in the rideshare sector. Uber fared poorly after its 2019 initial public offering (IPO). The pandemic only worsened the situation in 2020. But in early 2021 Softbank sold $2 billion worth of Uber shares and retained another $10 billion worth at that time.
Since early May it seems that things are turning around on the hopes of an economic reopening. Monthly active platform users for the first three months of 2021 were only 5% off of 2020 levels. Gross booking revenues were up 24%. Adjusted EBITDA increased by 41%, though still negative.
However, while UBER stock was down in the early days of this month, it has regained some of its footing, rising 9.2% since May 12.
Qualtrics International (XM)
Qualtrics is one of 11 publicly listed holdings in the Vision Fund portfolio of 81 companies. It, along with Coupang, started publicly trading this year. XM stock undertook its IPO in late January and has yet to prove that it can bring returns to investors. It has been disappointing, dropping from $45 at listing to $33 in the nearly four month interim.
The software platform developer has plenty of time in its young life to prove that it can provide returns for its investors. That is evidenced by the fact that despite prices dropping over the last few months, analyst sentiment has improved. Analysts were evenly split between buy and hold ratings three months ago. Today, they give XM stock 12 buy ratings and five hold ratings.
Qualtrics defines its business as experience management, which includes four main areas. This includes customer experience, product experience, product experience and brand experience. The company boasts impressive stats like the fact that 85% of the Fortune 100 use its products and services. Yet it cannot be said that the company isn’t experiencing growing pains. While revenues grew 36% in Q1 ‘21, losses also mounted. Qualtrics saw its net loss hit $199.9 million, up from $48.8 million a year earlier.
Once Qualtrics proves to its customers that its products can improve their experience, it should rise.
10x Genomics (TXG)
10x Genomics is another tech firm which has gone public under Softbank’s backing. The company is focused on biology and DNA-related fields of transcriptomics, genomics, epigenetics, and related software and hardware.
Since the company’s September 2019 IPO, the TXG stock price has tripled qualifying it as a golden egg. 10x is a company with a diversified revenue base in which 50% of sales come from outside the U.S. It also relies on no single client for more than 5% of revenues. Equally importantly, 10x is working with all 100 of the top research institutions and the top 20 global pharmaceutical companies.
The company is also growing quickly on a revenue basis. Q1 earnings showed that revenues increased by 47% year-over-year. The increase in revenues was primarily driven by its consumable products that it sells across its platforms. The company also moved closer to profitability during the quarter, posting an $11.6 million loss. That was down from the $21.1 million loss posted for the first three months of 2020.
DoorDash is another of Softbank’s golden eggs. Though DoorDash has been volatile and bearish claims indicate that it may be unsustainable at current prices, Softbank’s investment is a winner.
An article on livemint summarizes Softbank’s investment well: “SoftBank owns 20% of DASH stock post IPO, a stake it acquired over a period of two years for $680 million. The Vision Fund first invested in DoorDash in the spring of 2018, acquiring almost 51 million shares at a price of $5.51. It did so again twice the following year, as the price climbed to $22.48 and $37.94. The final round this June saw SoftBank pay $45.91 for just a little over 1 million shares.”
DASH stock is currently trading at $137, so Softbank’s risky strategy has clearly paid off in this case. On the other hand, investors who bought in during DoorDash’s December 2020 IPO have not fared as well. Since then share prices have declined by about 27%.
Although revenue grew 198% in Q1 and profits increased by 233%, DASH stock still faces trouble. The market seems to be reticent as the pandemic wanes and fears it may cool, heat up.
Although Coupang shares are down since their March 11 IPO, it has been anything but disappointing to Softbank. When Coupang became publicly traded it quickly became clear that Softbank had notched another win under its belt.
Softbank paid $3 billion for a 37% stake. That meant that at the IPO, Softbank scored a $33 billion windfall. At least that’s what media headlines touted when the deal occurred.
Once Softbank reported the full gains from the transaction it became clear that the actual number was a $36.99 billion unit profit from CPNG stock. Obviously Softbank is very happy about its investment in the South Korean ecommerce platform.
Investors remain undecided about the company. Although it posted a 72% increase in revenues in its latest earnings report, it also posted a 68-cent loss per share. Expectations were that the loss would be about 16 cents per share. There are also lingering concerns about net losses which continue to run into the hundreds of millions of dollars on an annual basis.
A lot has been written about Nvidia’s move to purchase ARM, which is owned by Softbank. If the deal ends up being consummated and ultimately passes regulatory scrutiny, Softbank will likely end up with some control over NVDA stock. Softbank has been investing heavily in data center, automotive, and IoT.
These are areas complementary to Nvidia and a lot of what Softbank is doing with ARM is done with the Nvidia sale in mind. There are also certain realities which indicate that Nvidia may be the only realistic target at this point.
As Forbes contributor Kevin Krewell of Tirias Research, wrote last week: “The alternatives to Nvidia are few. One would be to have a group of Arm partners acquire the company from SoftBank. This would be similar to the investments Apple, Intel, and other companies once made in Imagination Technologies to keep it as a 3rd-party IP provider. However, the competitive nature of the Arm ecosystem and the $40 billion price tag sought by SoftBank makes this scenario unlikely.”
It could very well be that Softbank scores another windfall in this deal that’s stirred NVDA stock buzz.
Zymergen is a Softbank-backed company which has only recently started trading publicly.
The company engages in what it calls ‘biofacturing’. This is essentially the process of designing, developing, and manufacturing products based on nature and the company’s patented platform.
Since the ZY stock IPO on April 22, shares are down slightly at $35 from the $37.65 debut price.
Earnings released on May 24 showed total revenue was $3.7 million dollars for the three months ended March 31, 2021, all relating to R&D services agreements and collaboration revenue. This was a 26% increase over the same quarter in 2020, and was primarily driven by the impact of new and acquired contracts, the company said.
Hyaline is one of the products the company is hoping can drive its commercial adoption. Hyaline is a polyimide film with high transparency, high temperature resistance, and properties which give it utility in products such as electronics screens. R&D expenses for the product contributed to a 32.8% increase in Q1 total operating expenses.
So, if Zymergen can sell successfully sell this product into the competitive cellphone market, it might rise very quickly.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.