SoftBank to Reduce Stake in Alibaba to Build Economic Moat

SoftBank has announced that it is reducing its stake in the Chinese e-commerce giant Alibaba to raise funds after a turbulent first quarter.

Aug. 11, 2022

SoftBank Group (TYO: 9984) has recently announced that it will reduce its stake in the Chinese e-commerce giant Alibaba Group (NYSE: BABA). The online retailer was once the crown jewel of the investment fund founded by CEO Masayoshi Son who invested $20 million in 2000. This stake was worth roughly $60 billion when Alibaba went public in 2014. 

Why is SoftBank selling part of its stake in Alibaba?

Softbank expects to generate a gain of roughly $34 billion after a recent investment spree led the company to account for a record loss of $23 billion in the previous quarter. This comes two days after the company sold off its holdings in Uber Technologies (NYSE: UBER).

SoftBank expects its share of Alibaba to fall to 14.6% by the end of September, down from 23.7% as of June 30th. This will result in SoftBank switching its accounting system from including a portion of the e-commerce company’s profits as its own. 

The Japanese investment conglomerate said the decision to sell its shares was to provide a “defense against the severe market environment” and would ease concerns about future cash outflows while cutting costs. 

SoftBank said it forecast a contribution to pre-tax income of $34 billion due to its Alibaba sale. The largest portion comes from accounting for the remaining Alibaba shares on SoftBank’s books at market value.

SoftBank has recently been trying to stock up on cash. In its most recent earnings report, SoftBank had a cash supply of 4.6 trillion yen, roughly $34 billion. This is over double the 1.8 trillion yen it said was needed to repay its corporate bonds over the coming two years. 

Both stocks have seen their share prices decline this year, with Alibaba’s share price dropping by 23.22%, while SoftBank dropped by only 3.05% this year-to-date.