By Anton Bridge
TOKYO Japan's SoftBank Group is likely to report a return to profit when it announces first-quarter earnings on Tuesday, analysts said, as its Vision Fund investing arm's portfolio of technology stocks enjoyed a rebound.
The tech investor has posted two consecutive years of loss on the slumping value of the Vision Fund portfolio and sold down its crown-jewel stake in Chinese e-commerce firm Alibaba Group Holding to bolster its balance sheet.
A return to profit could ease pressure on founder and CEO Masayoshi Son, who shook up the tech investing world with aggressive bets on late-stage startups but suffered a series of high-profile stumbles as investments underpeformed.
Investors will also be looking for updates on the potential blockbuster listing of portfolio chip designer Arm, which if successful would provide a further cash injection for the group and burnish Son's credentials as a farsighted tech investor.
"It's a major catalyst for the company and a very important event for tech as a whole, considering Arm's important position in semiconductors," said analyst Rolf Bulk at New Street Research.
SoftBank is set to post net profit of 75 billion yen ($525 million) for April-June, showed the average of four analyst estimates compiled by Refinitiv.
Its Vision Fund unit has booked five consecutive quarters of investment loss after backing high-growth firms which fell out of favour with the market, forcing the conglomerate into a defensive stance to preserve cash.
"Public valuations in tech are trending up again and I would expect private valuations to follow suit," said Bulk.
Listed gainers during the quarter included food delivery company DoorDash and ride hailing business Grab Holdings.
Analysts expect a return to profit could herald an uptick in new deals. Son in June said he plans to shift to "offence mode" amid excitement over advances in artificial intelligence (AI).
Recent activity by SoftBank includes its creation of a joint venture to build automated warehouses and investment in insurance tech company Tractable.
Analysts have also expressed enthusiasm over Arm's prospects for expansion in data centres and in the automotive sector. Already, expectation that investment in AI will drive industry growth has boosted the market capitalisation of chipmaker Nvidia - a former Arm suitor - above $1 trillion.
Given elevated valuations of industry peers, Macquarie analyst Paul Golding said he sees potential upside of $31.4 billion for Arm from its current book value.
"SoftBank mandated Arm to reinvest all of its profit to enter new markets," New Street Research's Bulk said. "Arm is now in a phase where they can reap the benefits of that investment."
($1 = 142.6600 yen)
(Reporting by Anton Bridge; Editing by Sam Nussey and Christopher Cushing)
