Although SoftBank owns stakes in a variety of companies, the bulk of the value of its equity portfolio is held in the following: Sprint, Yahoo Japan, Renren, and Alibaba. We break down the value of these stakes in the table below. We note that for Alibaba, we model a valuation of $153 billion, based on a consensus estimate compiled by Bloomberg of analysts covering the company (as of February 5, 2014), and that an IPO of Alibaba may lead to significant changes in the company's valuation, depending on market conditions, quarterly results, and other factors. While a fully accurate valuation of Alibaba will not be available until the company completes its IPO, the figure we have used is derived from a Bloomberg consensus of all the analysts covering Alibaba, and in our view, represents the market's current belief in the company's overall equity value. Naturally, different valuations will yield different estimates for Alibaba's value to SoftBank. However, we do note that Amazon (AMZN) holds a market capitalization of over $162 billion, and Alibaba's net income is exponentially higher than that of Amazon.
SoftBank's three core publicly traded stakes are worth ¥3,551.64 per share, representing over 47% of the company's current market capitalization (based on a February 13 share price of ¥7,506). However, that does not take into account the company's stake in Alibaba. Based on a valuation of $153 billion, and SoftBank's 37% stake, the company's Alibaba investment is worth ¥5,769,181,710,000 or ¥4,854.46 per SoftBank share. Together, SoftBank's four equity investments are worth ¥8,406.10, well above its current share price. But, as we mentioned above, this does not take into account the value of SoftBank's underlying operations or assets. Conservatively, we will base our valuation of SoftBank's underlying operations on its equity attributable to owners of the parent, less the company's equity method investments, in order to avoid double-counting its equity stakes. This methodology yields a figure of ¥1,407.71 for SoftBank's core operations, and a total aggregate value of ¥9,813.81, or more than 30% above SoftBank's February 13 closing price of ¥7,506.
While such upside is notable, we believe it to be conservative. A price target of ¥9,690.86 gives credit only for the value of the investments that it has already made, and the present value of its core Japanese operations, and fails to ascribe any value to the company's future growth potential, either in Japan or the United States. And as we will show below, the latest quarterly results at both Sprint and SoftBank show solid progress at both companies.
Source: Seeking Alpha
