SoftBank – Pressure cooker

Softbank must be under real pressure.

• In the current environment, the last thing one should do is bring a highly valued, loss-making, sharing economy-based company to IPO, demonstrating that Softbank is under withering pressure to produce some good news.
• With the spectre of a global infectious pandemic looming, businesses that enable users to share assets are not particularly desirable as close contact with strangers is what needs to avoid most of all.
• This is why Uber and Lyft are down 20%, Grubhub 13%, Regis 15% and Planet Fitness 19%.
• If Airbnb and WeWork were listed, they too would be cratering.
• At the same time businesses that allow you to stay at home like Zoom and Peleton are substantially outperforming the downturn.
• Consequently, SoftBank’s announcement that it is seeking a listing for DoorDash (which has plenty of competitive issues of its own) sounds like suicide.
• DoorDash is in a much better position than most of its rivals, as it leads in most of its USA markets but its dominance yet to reach a point where it is making good money.
• Furthermore, it is still investing for growth in a crowded market meaning that losses are going to be a feature of life for the time being.
• Consolidation is coming in this sector and SoftBank has already been pushing DoorDash to merge with Uber which is something DoorDash has clearly resisted.
• SoftBank is really suffering as these two of its own companies are fighting each other tooth and nail for market share which is racking up losses for SoftBank on both sides.
• Merging the two together would probably have given SoftBank an opportunity to mark up DoorDash’s carrying valuation but now it will have to rely on an IPO to do the job for it.
• The problem is that in this environment, I can not see how this IPO will see any demand at a price which will allow SoftBank to declare to its backers that this investment is a success.
• Consequently, I think it highly likely that this IPO will be delayed indefinitely as there is no sign that the current fear gripping the market will ease.
• I remain extremely cautious on the equity market in general while its attitude of indifference to the economic impact of global coronavirus containment is adjusted to reality.
• I am in cash and gold at the moment and see no reason to change.