SoftBank (SFTBY) founder Masayoshi Son's tireless ambition to create a global technology empire has made headlines again this year, but his debt-fulled acquisition strategy, highlighted by a $30 billion takeover of ARM Holdings, has some investors worried about over-leverage.
Whether that concern is warranted should be revealed to some extent Monday as the Japanese group, still widely recognized as a wireless carrier in its home country, reveals its financial position alongside second quarter earnings.
A consensus of 17 analysts compiled by FactSet calls for net profit of ¥630.8 billion ($6.1 billion) on revenue of ¥2.16 trillion for the three months ended September 30. This compares with a net profit of ¥213 billion and revenue of ¥2.29 trillion booked in the same period last year.
A key figure would be the company's interest-bearing debt, which swelled to ¥12.37 trillion from ¥11.92 trillion during the three months to June 30. With the purchase of U.K.-based chip designer ARM, which SoftBank announced in July and completed early September for £24 billion ($30 billion), the debt level should rise even further, even though the deal was partially financed through the sale of stakes in Supercell, GungHo (GUNGF) , and Alibaba (BABA) .
It remains to be seen, however, whether the level is enough to raise eyebrows, as it has for Moody's Investors Service.
One way of gauging whether SoftBank is in troubled territory may be to check the level of debt to earnings.
Alongside first quarter results announced late July, SoftBank estimated that the ratio of its net debt/Ebitda ratio would stand at 4.4 times after the ARM purchase. That's lower than the 6.8 level recorded just after the company acquired the Japanese unit of Vodafone in 2006, but up from 3.8 times in March of this year.
Moody's, which affirmed its Ba1 rating on SoftBank on September 16, said it could consider a downgrade if the company's debt/Ebitda ratio exceeds 5.5 times "on a sustained basis".
Another interesting angle would be whether SoftBank's numerous and widespread investments have been worthwhile - although this study may be take longer.
Sprint (S) is one investment that has concerned investors for some time. The telecom carrier, which SoftBank bought for about $20 billion in 2012, has persistently been in the red, and continued to book a net loss again in the recent quarter. Not only that, ¥3.9 trillion, or around a third of SoftBank's current interest-bearing debt, is linked to its investment in Sprint.
In addition to Sprint and ARM, SoftBank has invested in a wide array of e-commerce and Internet names, as well ride sharing, fintech, and healthcare players. It has also pinpointed IoT, artificial intelligence, autonomous driving, virtual and augmented reality as areas of further interest.
CEO Son has repeatedly emphasized that his investments are on-point and worthwhile, noting an average return on investment of 44%. Investments in Finnish game developer Supercell, which SoftBank sold to China's Tencent Holdings (TCEHY) in June achieved a 93% return, while a partial Alibaba stake sale in June achieved 68%.
Son, who had once hinted at handing over the reins of the 35-year old company to then-president and COO Nikesh Arora, returned to take control in June "to work on a few more crazy ideas."
The acquisition of ARM no doubt epitomized this, as the founder spoke passionately about how moved he was when he first saw a snapshot of a semiconductor in a science magazine as a teenager. By buying ARM, he went on to say, he wanted to stay on top of the new era of the Internet of Things.
Son's ambitions have not stopped there. In October, he hit the headlines once again by revealing he would set up a $100 billion tech fund with Saudi Arabia.
One thing is for sure: Son is far from ready to step away from the spotlight.