SoftBank profit climbs on proceeds from Alibaba stake sale

People walk behind the logo of SoftBank Corp in Tokyo, on Dec 18, 2014.
People walk behind the logo of SoftBank Corp in Tokyo, on Dec 18, 2014. PHOTO: REUTERS

TOKYO (BLOOMBERG) - SoftBank Group Corp.'s first-quarter profit rose 19 per cent as proceeds from selling part of its stake in Alibaba Group Holding helped make up for losses at Sprint Corp.

Net incomeat the Japanese wireless carrier rose to 254.2 billion yen (S$3.25 billion) in the three months ended June 30, the company reported Thursday. SoftBank's operating profit was 319.2 billion yen. Sprint reported a US$302 million (S$409 million) loss in the quarter as the money-losing US carrier focused on growing its subscriber base over profit.

The gradual turnaround at Sprint has been overshadowed by SoftBank founder Masayoshi Son's US$32 billion deal for chip designer ARM Holdings. The company's biggest ever acquisition came just weeks after the departure of President Nikesh Arora, who is credited with a portfolio reshuffle that generated the cash needed for the purchase.

The changes have left investors wondering about Son's strategy for a company burdened by more than US$100 billion of debt.

"The ARM acquisition will have a major balance sheet impact in the short term and there has yet to be a satisfactory explanation of how and when it will become a core business for SoftBank," Tomohisa Nonomura, an analyst at Toyo Securities Co., said before the earnings announcement. "Sprint recovery is picking up steam. We can now consider the timing of their return to profit. Domestic operations continue to generate steady profits."

The company didn't issue forecasts citing "uncertain factors".

SoftBank posted gains of 204.2 billion yen in the June quarter, mainly on trimming the Alibaba stake with further profits expected in the current period. Even after the sales, it remains the biggest investor in China's e-commerce giant.

Income from SoftBank's Japanese telecommunications business jumped 11 per cent in the June quarter. While average revenue per user for its main phone business in Japan fell to 4,610 yen in the quarter, the company added 112,000 users, taking its total subscription base to 32.1 million.

Mr Son has depended on growth at home to help fund the turnaround of Sprint.

Sprint booked its sixth straight quarter of subscriber gains, adding 180,000 monthly subscribers with shares of the Kansas-based company rallying 28 per cent the following day. Sprint Chief Executive Officer Marcelo Claurehas attracted customers through some of the industry's most aggressive promotions, including half-price offers.

Mr Son earlier this month said Sprint's recovery is on track as he announced plans for the ARM acquisition, a designer of chips. He said the deal is a wager on the future of connected devices, called the internet of things. SoftBank's shares are down 11 per cent since the deal was announced, erasing about 770 billion yen in market value.

"I plan to dedicate the majority of time going forward to Sprint and ARM," Mr Son said Thursday. "ARM will remain an independent company, keeping its own business model, brand and management. We are not planning to send over our executives, but would like to share our wisdom."

Investors remain concerned about SoftBank's balance sheet and the hefty premium it's forking over. SoftBank is paying a multiple of almost 53 times the UK company's trailing 12-month earnings before interest, taxes, depreciation and amortization. That's more than twice the median of other deals in the sector.