(This May 10 story has been corrected to specify that Arm is a subsidiary, not a wholly owned subsidiary of SoftBank Group, in paragraph 3)
By Anton Bridge
TOKYO (Reuters) - Japanese technology investor SoftBank Group is expected to slip back into the red when it reports earnings on Monday despite technology stocks including Arm Holdings, its core asset, performing well over the quarter.
Analysts and investors are also eagerly awaiting clues about new growth investments as SoftBank has ample liquidity and can monetise its huge holding in Arm.
The share price of Britain-based Arm, in which SoftBank has a 90% stake, roughly doubled in February after strong earnings results stoked investor excitement over Arm's anticipated gains from the adoption of generative artificial intelligence (AI), but Arm's share price does not feed into SoftBank's profit as it is a subsidiary.
The performance of SoftBank's other listed assets were mixed over the quarter - shares in Coupang and DoorDash rose but DiDi Global and Grab Holdings fell. The initial public offering (IPO) market remained subdued, leaving analysts uncertain of the monetisation prospects for SoftBank's portfolio of unlisted tech startups.
SoftBank is slated to record a net loss of 72 billion yen ($462.70 million) over January-March, according to the average of two analysts polled by LSEG, compared to a 985 billion yen net profit in the previous three months.
SoftBank's management has said it is ready to make new growth investments but has stressed it will adopt a cautious approach.
New investments were minimal in the October-December quarter but analysts say a large, controlling acquisition - along the lines of its $32 billion purchase of Arm in 2016 - could be in the offing.
SoftBank could fund up to $30 billion by combining its liquidity at hand as of the end of 2023, the proceeds of bonds issued in March and by negotiating a margin loan on its Arm stake, according to calculations by Nomura Securities credit analyst Shogo Tono.
But while the Arm stake may make possible an investment on this scale, its dominance within SoftBank's portfolio poses a risk should market sentiment turn, hitting SoftBank's value and fundraising capacity.
Currently Arm trades at premium valuations far in excess of competitors such as Nvidia that have pushed it to constitute almost half of SoftBank's equity value.
Some analysts warn this is unsustainable. Moningstar analyst Javier Correonero estimates a fair value for Arm of $57 per share, compared to its recent trading range around $100 per share.
Investors were disappointed by Arm's annual revenue forecast at its quarterly earnings on Wednesday, sending its shares tumbling up to 8.5% the following day and underlining the risk of a major rerating.
($1 = 155.6100 yen)
(Reporting by Anton Bridge; Editing by Stephen Coates)
