Softbank Remains A Very Rare, Unidentified Value Investment Feb. 13, 2015 6:37 PM ET | About: SOFTBANK Corp. ADR (SFTBY), Includes: BABA, YHOO by: Brian Nichols Disclosure: The author is long SFTBY. (More...)The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
•Softbank and YHOO's investments are very similar relative to the valuation of each company.
•The difference is Softbank's underlying business relative to YHOO.
•Based on my analysis, shares of Softbank are worth twice the current price.
After a five-year 95% rally in the S&P 500, there aren't too many value investment opportunities left in the market. Those have mostly been gobbled up. Yet one of the rare, and obvious values that exist is Softbank (OTCPK:SFTBY), a company whose upside might very well be unmatched in the entire large cap technology/telecom space.
Since 2012, Yahoo (NASDAQ:YHOO) shares have surged nearly 200% despite lacking any fundamental metric to support those gains. During this period, Yahoo's trailing 12-month revenue has declined 7.5% and its free cash flow has fallen a whopping 40%. However, the reason for those gains have nothing to do with Yahoo's broader business, or Mayer's strategic plan for the company. Instead, its the 15% stake in Alibaba (NYSE:BABA) and 35.5% stake in Yahoo Japan that's worth nearly as much as Yahoo's entire market capitalization that has sparked these gains. Essentially, Yahoo's broader business is irrelevant, especially when the company has $38 billion worth of equity investments waiting to be divested.
That said, Softbank has very similar investments. It owns 43% of Yahoo Japan (valued at $9.5 billion) and 32% of Alibaba (valued at $68 billion). Combined, these investments are worth $6 billion more than Softbank's entire market capitalization of $71.5 billion. Granted, for investors who want to get technical, we could eliminate that $6 billion differential with Softbank's $22 billion acquisition to acquire 80% of Sprint. That acquisition is now worth $16 billion, a $6 billion loss.