SoftBank Q1 net income drops 39% after being slapped with Alibaba fine and Coupang dip

While SoftBank's net sales continue to grow, some of its investments in China have been rocked by increased regulatory scrutiny.

SoftBank Group on Tuesday reported a 39% year-on-year dip for its first-quarter results, posting ¥761.5 billion in net income. This was despite the company posting almost ¥1.48 trillion in net sales for the quarter, which was 15.6% more when compared to the same period last year.

The drop in net income was attributed to 42% more taxes -- to the tune of ¥360 billion -- and China's local tech crackdown that saw SoftBank face higher expenses due to Alibaba -- which SoftBank has a stake in -- being fined 18.2 billion yuan by China's State Administration for Market Regulation in April. 

During the April-to-June quarter, Alibaba also saw its investment value drop because of impacts from the pandemic, which also contributed to SoftBank's lower net income.

The net income of SoftBank's various segments consisted of ¥271 billion from Japanese telco SoftBank Corporation, ¥235.5 billion from its pair of Vision Funds, ¥625.7 billion from its holding companies segment, and almost ¥8.8 billion from Arm. 

The Vision Fund segment's net income of ¥235.5 billion was an 80% year-on-year improvement and came off the back of its investments seeing gains of ¥391.5 billion. The gains were largely represented by the ¥358 billion and ¥285 billion valuation gains recorded by Didi and DoorDash, respectively.

When SoftBank posted record annual profit of ¥4.99 trillion in 2020 three months ago, SoftBank CEO Masayoshi Son at the time said that he saw further upside from "golden goose" investments like Coupang, Didi, and DoorDash.

While DoorDash has continued to perform well, Coupang has since experienced a ¥470.6 billion valuation loss and Didi was ordered to be removed from app stores in China shortly after the first quarter.

Looking at SoftBank Corp, the conglomerate's Japanese telco, it continued to chug along with its net income improving by 4.5%. The uptick was due to the positive impact of consolidating with LINE Corporation and higher income from the enterprise portion of its business, the telco said, which culminated in ¥1.3 trillion in net sales -- a 15.7% jump.

"Income in the enterprise business increased due to an increase in mobile revenue following growth in demand for remote working, along with an increase in sales of cloud services and security solutions as the digitisation of enterprises accelerates," SoftBank said.

Arm also performed solidly during the quarter, with its net sales jumping up by 60% year-on-year to ¥74.2 billion, which is what culminated in the segment seeing a quarterly profit for the first time since March 2017. The $40 billion sale of Arm to Nvidia is still pending as the UK's competition regulator is continuing to investigate the deal.

The jump in sales was due to record chip sales, and Arm's customers benefiting from both market share gains and higher chip prices, SoftBank said.

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