Home SoftBank shares slide despite better-than-expected quarterly results
Stock Market Analysis & News

SoftBank shares slide despite better-than-expected quarterly results

Alejandro Arrieche
Fact Checked
Fact Checked
Everything you read on our site is provided by expert writers who have many years of experience in the financial markets and have written for other top financial publications. Every piece of information here is fact-checked.
Please note that we are not authorised to provide any investment advice. The information on this page should be construed for information purposes only. We may earn commissions from the products mentioned on this site.
Masayoshi Son Softbank

Shares of Japanese conglomerate SoftBank are sliding this afternoon despite the fact that the company headed by Masayoshi Son (pictured) swung to profits during its first fiscal quarter of 2020 after reporting a record loss of $13 billion during the last fiscal year.

The company reported a quarterly pre-tax profit of $12 billion, managing to recover most of the loses it saw at the end of the previous fiscal year, although a significant portion of these gains are unrealised profits – meaning that they come from higher valuations of the financial assets held by the conglomerate.

Higher equity prices resulting from the broad-market rally that followed the pandemic sell-off of February were one of the primary drivers for these positive quarterly results, along with the partial sale of T-Mobile, which netted the firm around $3.96 billion pre-tax.

Moreover, the Japanese firm said it partially monetised its Alibaba shares by receiving funds from prepaid forward contracts, procuring a total of $13.7 billion as a result of this operation.

How is the market reacting to the news?

Although the company’s results beat estimates of $7 billion in profits that S&P Global had forecasted for the conglomerate, SoftBank (SFTBY) shares are sliding 2.15% so far on Wall Street after dropping 2.45% in Tokyo earlier in the day.

This drop could be because of suspicions that the firm is resorting to pulling a few rabbits out of the hat rather than showing improvements in the fundamentals of its underlying businesses. Specifically that means looking at the performance of its investments in startup businesses including Uber (UBER), WeWork, and more recently Lemonade (LMND).

SoftBank shares topped at $33 per share on 31 July and slid back down to $30 during this morning’s stock trading activity, posting a 9% loss in roughly 11 days.

What could be expected from SoftBank shares in the coming days?

SoftBank is preparing some major moves that could dramatically influence the price of its shares in the coming days.

First of all, the company said it was contemplating the idea of selling UK chip designer Arm, an investment that cost the bank $32 billion, with graphics chip maker Nvidia being among the list of potential buyers.

Additionally, SoftBank has been consistently buying back shares, following its ¥4.5 trillion ($43 billion) buy-back plan proposed this year. So far, around ¥2.5 trillion has been repurchased already according to the quarterly report, but more buy-backs would result in another push for the company’s share price.

softbank shares 1
SoftBank (SFTBY) price chart – Weekly candles feat. RSI – Source: TradingView.com

SoftBank shares are still riding a strong uptrend from 2016 but the stock is highly over-extended from its 200-day moving average, which represents a significant risk for traders, as any negative news – especially from the side of its investment fund – could trigger a sharp sell-off as a result of a potential mean-reversing move.

Moreover, the weekly RSI is sending an overbought signal at the moment, a situation that has not turned into good news in the short run for SoftBank shares in the past.

softbank shares 2
SoftBank (SFTBY) price chart – 1-day candles feat. RSI – Source: TradingView.com

That said, there are still some major elements playing in favour of the conglomerate’s shares. First, the share buyback programme should provide strong support for the price of the stock. On the other hand, most of the businesses that the Vision Fund has invested in are in the tech space, a sector that has been highly favoured during the pandemic, although a sector rotation resulting from improving macroeconomic factors could reverse that trend.

At this point, there are a few support levels that traders should keep an eye on if this downward momentum continues to build up in the following sessions.

First, there’s the 0.236 retracement level at $28.23 per share, which has not been crossed since early July. After that, there’s the 50-day moving average line at $27.5 and then there’s another key support right at the lower trend line the stock has been on since the March lows.

Breaking below those levels in the following sessions should spark worries about a major mean-reversion move, although the chances for that to happen are low at the moment after considering some of the elements cited above.

Question & Answers (0)

Have a question? Our panel of experts will answer your queries. Post your Question

Leave a Reply

Write a Review

Your email address will not be published. Required fields are marked *

Alejandro Arrieche

Alejandro Arrieche

Alejandro is a financial analyst with more than 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis. Other publications Alejandro has written for include The Modest Wallet, Capital.com, and LearnBonds.