IPO

SoftBank's Vision Fund squeezes through the IPO window

March 8, 2021
SoftBank-backed ecommerce company Coupang could fetch a $51 billion valuation in its Nasdaq IPO, which is expected this week. (Courtesy of Coupang)


After enduring a loss-ridden slump, Masayoshi Son's SoftBank is profitable again, thanks to a string of blockbuster IPOs and a bull market in tech stocks.

Now, Son is set to keep that success rolling as SoftBank's $100 billion Vision Fund readies some of its biggest portfolio companies to go public.

The action will pick up in the coming days when Coupang, a South Korean ecommerce juggernaut, debuts on Wall Street in a deal that could value the company at more than $51 billion on a fully diluted basis.

Assuming it goes out at that level, the Coupang IPO is poised to be the largest for a foreign company in the US since Alibaba, according to PitchBook data. Moreover, it would make the Vision Fund's 33% stake in Coupang worth roughly $16 billion, far larger than its holdings in Uber or DoorDash.

Coupang is one of more than half a dozen Vision Fund-backed companies that are planning or on track for near-term IPOs or SPAC mergers, as part of Son's goal to take 10 to 20 companies public annually. Among the others are real estate tech company Compass and freight platform operator Full Truck Alliance, both valued by private investors at several million dollars apiece.

SoftBank's "harvesting period," as Son calls it, began with a bumper crop of 11 exits since last year. That activity coincided with a sharp reversal of fortunes, which had reached a low with a net loss of 961.6 billion yen (nearly $8.9 billion) in the fiscal year ended March 2020.

Between March and December, the Vision Fund's gain improved from $4.8 billion to $20.4 billion. And SoftBank recorded a profit of 3.1 trillion yen (nearly $29 billion) for the nine-month period.

Much of the improvement was tied to stock price gains from DoorDash and Uber, which together made up 82% of the value of the Vision Fund's public companies, according to SoftBank's most recent quarterly disclosures.
 


The wildly successful DoorDash IPOin December exemplified a broader trend that might explain why Vision Fund companies are racing to public markets.

The premium that investors are paying for tech deals is at a decades-long high. Last year, tech companies that went public in the U.S. were valued at around 23.3 times their current sales at the end of their first trading day, according to an analysis by Jay Ritter, a finance professor at the University of Florida who studies the IPO market. That figure was the highest since the dot-com era and more than double the average price-to-sales ratio for tech IPOs in recent years.

The appetite among investors for private tech companies has helped to shore up the stock price of SoftBank, which has long traded at a discount to the sum of its holdings, said Dan Baker, a senior equity analyst at Morningstar who covers SoftBank.

"People are almost paying a premium in some ways for SoftBank now because it's an easy way for them to get access to those sorts of investments," Baker added.

Related read: Silicon Valley's banner year on Wall Street reshapes IPO landscape

In addition to ecommerce hits like Coupang, the Vision Fund is riding tailwinds from its holdings in mobility tech and real estate.

Real estate tech company Compass recently unveiled its IPO filing, which showed that SoftBank was its largest backer with a nearly 35% stake. The New York company's revenue swelled 56% year-over-year to $3.7 billion in 2020. It has yet to disclose its estimated price range for the offering, but Compass was last valued at $6.5 billion in a 2019 private deal, according to PitchBook data.

The Compass IPO comes not long after Opendoor, another Vision Fund real estate bet, went public through a SPAC merger with Social Capital Hedosophia II, one of Chamath Palihapitiya's many blank-check companies.

The deal valued Opendoor at $4.8 billion, and the company's stock has nearly doubled since the merger was announced in mid-September. SoftBank held a nearly 13% stake as of early January.

Other mammoth offerings could come from the Vision Fund's transportation and logistics holdings that were central to its recent turnaround.

Chinese ride-hailing company Didi Chuxing is reportedly seeking a more than $60 billion valuation in a Hong Kong IPO this year. And Grab, the Singapore-based super-app maker, is also said to be planning a listing.

SoftBank's stake in the two companies is unknown but undoubtedly large. The firm participated in four rounds for Didi worth more than a $1 billion each as well as two for Grab, according to PitchBook data.

Another SoftBank-backed mobility company, Full Truck Alliance, recently filed confidentially for an IPO that could reportedly raise $1 billion. Known in China as Manbang Group, the company was last valued at $11.7 billion and posted a narrow profit last year, Bloomberg reported.

The recent and upcoming wins have helped to burnish the Vision Fund's reputation in the wake of its botched effort to take WeWork public in 2019. But it continues to wrangle with trouble spots in its portfolio.

In recent days came news that Greensill Capital, another Vision Fund portfolio company, could soon file for insolvency. SoftBank has reportedly written down its $1.5 billion investment in the British financial firm. For its part, Greensill said it is in bailout talks with unnamed financial partners.

Meanwhile the Vision Fund-backed hotel chain Oyo has undergone massive layoffs and a retreat from major markets in the past year. SoftBank has reduced its valuation of the company from $10 billion in 2019 to $3 billion, according to the Financial Times.

But a more fundamental risk is that the red-hot market for tech IPOs could cool off before SoftBank is able to capitalize on the bullish conditions for its planned offerings.

"If the market is reasonably hot for these sorts of stocks, [SoftBank will] have enough supply coming through to get some decent IPOs away," Morningstar's Baker said. "But as we saw when the market went south early last year, that can turn around pretty drastically."

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