Why prudent investors remain wary of SoftBank

livemint.com:

told CNBC that SoftBank’s holding in Arm was a red flag – that he would want to avoid whatever SoftBank tells him to buy, and that it didn’t “have a soft touch when it comes to building businesses". Data shows why prudent investors are exercising caution. Several of SoftBank’s high-profile IPOs are currently yielding negative returns: Chinese ride-hailing company DiDi Global, valued at $63 billion, is down 77% from its offer price, and artificial intelligence (AI) software provider SenseTime is down 64%.

It's not a reflection of performance, though. DiDi’s revenues jumped by 50% in the recent quarter and its losses narrowed, while SenseTime unveiled its own ChatGPT rival in April. Rather, the concerns are around pricing, partly a result of SoftBank's tendency to invest in late-stage companies and partly its reliance on hype around a sector.

One reason Arm’s IPO sailed through is the buzz around AI. Arm's share price rose 25% on debut but is now trading just 2% above its offer price. Arm's listing was highly anticipated because of what it can do for SoftBank by virtue of being its biggest portfolio holding.

Arm’s was the biggest IPO this year, and could spark a revival in the IPO market. Arm Holdings going public was especially important for SoftBank, which acquired the company for $32 billion in 2016 and was looking to cash in. While Arm is now the single biggest investment in SoftBank’s portfolio, all is not hunky dory with it.

Its revenues and profits have been growing on the back of demand for smartphones and computers. In 2022-23, however, revenues shrank marginally due to tepid smartphone sales. SoftBank's plan A was to sell Arm to chipmaker Nvidia in 2020 for $40 billion, which would also have given it a stake in