SoftBank’s Profit Turnaround: Sustained Recovery or Fleeting Rally?

SoftBank Group’s fiscal 2024 results revealed a striking turnaround: record revenue of ¥6.5 trillion, net income surging 8%, and operating income hitting ¥989 billion—13% higher than the prior year. Yet beneath the headline figures lies a critical question: Is this recovery rooted in durable operational improvements, or is it a temporary rally fueled by one-off gains? To answer this, we must dissect SoftBank’s profit drivers, structural reforms, and the risks clouding its path forward.

The Profit Drivers: A Mix of Momentum and Momentum-Dependent Gains

SoftBank’s FY2024 success hinges on three pillars: Arm Holdings’ IPO, Vision Fund performance, and cost discipline.

1. Arm’s IPO: A Catalyst, Not a Silver Bullet

The September 2023 IPO of Arm Holdings, SoftBank’s prized semiconductor design subsidiary, injected critical momentum. While the IPO proceeds aren’t itemized in SoftBank’s FY2024 filings, its Vision Fund 1 recorded gains of ¥373 billion—partly attributable to Arm’s valuation jump. Post-IPO, SoftBank retains 73% ownership, positioning itself to capitalize on Arm’s role in AI chips. Yet, the IPO’s impact is a one-time event. Investors must ask: Can SoftBank replicate this success without selling core assets?

2. Vision Fund: A Volatile Engine

The Vision Fund’s performance remains a double-edged sword. While Q3 FY2024 saw a net loss of ¥369 billion (driven by Alibaba’s devaluation and forex hits), Vision Fund 1’s gains from Coupang and Didi softened the blow. Meanwhile, Vision Fund 2’s ¥232.6 billion loss underscores the risks of late-stage tech bets. The Fund’s China portfolio exposure now at 7% reduces geopolitical drag, but tech valuations remain fragile. A sustained recovery here requires smarter exits and fewer reliance on speculative plays.

3. Cost-Cutting: A Proven Lever

SoftBank’s operational discipline is its strongest suit. The Distribution segment hit its ¥30 billion operating income target a year early, while PayPay’s GMV surged 23%, proving cost controls and asset monetization work. These wins suggest SoftBank’s restructuring—streamlining non-core businesses and focusing on AI/cloud—are bearing fruit.

Valuation and Debt: A Path to Stability?

SoftBank’s valuation multiples hint at cautious optimism. Its P/E ratio of ~12x (vs. tech peers averaging ~20x) reflects skepticism about the Vision Fund’s volatility. However, debt reduction is tangible: Primary free cash flow held steady at ¥603 billion, and net debt fell 15% year-on-year. Combined with PayPay’s IPO plans—which could unlock an additional ¥30 billion in EBITDA—the balance sheet is strengthening.

The Risks: Tech Sector Volatility and Structural Headwinds

• Tech Sector Volatility: A downturn in AI or cloud adoption could derail SoftBank’s AI data center and Stargate joint venture (with OpenAI/Oracle) plans.
• Vision Fund Dependency: Over 40% of FY2024 profits stem from investment gains. Without consistent Vision Fund returns, SoftBank’s growth falters.
• Currency Risks: The ¥540 billion forex loss in Q3 FY2024 highlights vulnerability to yen fluctuations—a recurring threat.

Conclusion: A Re-Rating Opportunity, But Not Without Hurdles

SoftBank’s FY2024 results signal more than a rebound—they reflect a recalibrated strategy. The operational discipline, Arm’s AI potential, and PayPay’s growth justify a re-rating. However, investors must weigh this against the Vision Fund’s unpredictability and tech sector risks.

Final Thesis:
SoftBank is undergoing a credible transformation, with structural reforms and AI-focused investments laying groundwork for sustained growth. While one-time gains (like Arm’s IPO) provided a tailwind, the company’s focus on cost control and core assets positions it to thrive long-term—if it can navigate tech cycles and stabilize Vision Fund returns. For risk-tolerant investors, SoftBank’s current valuation offers an entry point into a restructured tech titan.

The verdict? A recovery rooted in resilience—but one that demands vigilance.