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SoftBank Group swung to a second-quarter net loss of $7 billion, hit hard by buildout costs for US data centers and by rising financing payments. The same quarter a year earlier produced a 2.5 trillion yen profit, when SoftBank logged a huge investment gain on the rising value of its OpenAI stake. Analysts surveyed by Bloomberg had expected a 129 billion yen net profit.
SoftBank raised $56.5 billion during the period, its highest ever quarterly total, as founder Masayoshi Son continues to pursue aggressive investment in artificial intelligence. That spending includes the $64.6 billion purchase of a 13% stake in ChatGPT maker OpenAI.
What Changed
- SoftBank Group swung to a second-quarter net loss of $7 billion, against a 2.5 trillion yen profit in the same quarter a year earlier.
- A $3.7 billion loss came from advance payments for equipment in US data center projects after plans changed; SoftBank said it could get rebates of up to $2.1 billion on future purchases.
- Financing costs came to 461.9 billion yen in the quarter, about 2.6 times the year-earlier level.
- A potential increase in OpenAI's valuation from a new funding round is not yet reflected in the results.
AI-generated summary, reviewed by an editor. More on our AI guidelines.
Power gear bought too early
SoftBank logged a $3.7 billion loss on advance payments for equipment in US data center projects, including a large development in Pike County, Ohio, after plans changed. It said it would be entitled to rebates of up to $2.1 billion on future purchases. Cumulative payments for power generation equipment for its US AI data center projects totaled $9.48 billion as of the end of September.
Intense competition for energy supply and power generation equipment led SoftBank to buy before long-term specifications were finalized, Chief Financial Officer Yoshimitsu Goto told a press briefing in Tokyo. Those orders could not be refunded when cancelled and also incurred fees, said Kazuko Kimiwada, the chief accounting officer.
"There are many cases where you have to change strategy for what you thought would probably have been OK a year or two ago," Goto said.
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SoftBank highlighted a 20-year lease agreement with OpenAI for eight gigawatts of IT capacity at a data center project in Ohio.
The borrowing bill
Financing costs came to 461.9 billion yen in the quarter, about 2.6 times the 174.7 billion yen of a year earlier. Borrowing during the period included an $11.87 billion term loan, a $10 billion dollar-denominated corporate bond and a 1 trillion yen-denominated corporate bond. SoftBank also increased the margin loan on its stake in chipmaker Arm by $5 billion, to roughly $25 billion.
That heavy borrowing, at sometimes eye-popping yields, has worried some investors. The yield on SoftBank Group bonds with five years left to maturity rose from 7.72% at the end of September to 8.22%, according to the Japanese data providers Quick and FactSet. The company is banking on the rising value of its holdings to outpace the interest payments on its debt.
Portfolio pressure
The Vision Fund segment swung to a loss of 81.58 billion yen, compared with a profit of 2.38 trillion yen a year earlier. Vision Fund 1 posted a $20 million investment loss despite a $1.3 billion gain on TikTok owner ByteDance, as shares of Coupang and Grab declined. Intel share declines also weighed on earnings.
Revenue held up. It reached 2.22 trillion yen in the quarter, above LSEG estimates of 2.02 trillion yen.
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SoftBank shares surged 14% on Tuesday ahead of the results. Like other AI stocks, they have almost halved in value since the start of June as investor sentiment cooled. The Democratic Party's sweeping success in last week's US midterm elections heightened expectations of regulatory scrutiny.
The OpenAI number still missing
The loss leaves out one number. SoftBank said a potential increase in OpenAI's valuation following a new funding round had not yet been reflected in its results, pending an official announcement. That update could come in the fiscal third quarter, potentially boosting its net asset value, the company said.
Goto declined to give details on the round, which people familiar with the matter have said values OpenAI at $1.25 trillion. He said it was highly likely that something would be announced in the third quarter.
Goto added a caveat. He said SoftBank was still working partly by trial and error, and that how to assess assets it no longer needs may become a subject of discussion in the future.
Frequently Asked Questions
How big was SoftBank's second-quarter loss?
SoftBank Group reported a second-quarter net loss of $7 billion. In the same quarter a year earlier it posted a 2.5 trillion yen profit, when it logged a large investment gain on its OpenAI stake. Analysts surveyed by Bloomberg had expected a 129 billion yen net profit.
What caused the data center loss?
SoftBank logged a $3.7 billion loss on advance payments for equipment in US data center projects, including a development in Pike County, Ohio, after plans changed. CFO Yoshimitsu Goto said competition for power generation equipment led SoftBank to buy before long-term specifications were finalized.
Can SoftBank recover any of that money?
SoftBank said it would be entitled to rebates of up to $2.1 billion on future purchases. Its cumulative payments for power generation equipment for US AI data center projects totaled $9.48 billion as of the end of September.
How much is SoftBank paying on its debt?
Financing costs came to 461.9 billion yen in the quarter, about 2.6 times the 174.7 billion yen of a year earlier. Borrowing included an $11.87 billion term loan and two corporate bonds.
When could OpenAI's new valuation show up in SoftBank's results?
SoftBank said a potential increase in OpenAI's valuation had not yet been reflected, pending an official announcement, and could be reflected in the fiscal third quarter.
AI-generated summary, reviewed by an editor. More on our AI guidelines.
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Marcus Schuler
Editor-in-Chief and founder of Implicator.ai. Former ARD correspondent and senior broadcast journalist with 10+ years covering tech. Writes daily briefings on policy and market developments. Based in San Francisco. E-mail: editor@implicator.ai
