Posts

July 15, 2019

Mad Hedge Technology Letter
July 15, 2019
Fiat Lux

Featured Trade:

(HOW SOFTBANK IS TAKING OVER THE US VENTURE CAPITAL BUSINESS),
(SFTBY), (BABA), (GRUB), (WMT), (GM), (GS)

How SoftBank is Taking Over the US Venture Capital Business

The man with the 300-year vision – Softbank’s Masayoshi Son.

He is the sole force exerting stultifying pressure on the venture capitalists of Silicon Valley.

What a ride it has been so far.

His $100 billion SoftBank Vision Fund has put the Sand Hill Road faithful in a tizzy – utterly revolutionizing an industry and showing who the true power resides with.

He has even gone so far as to double down on his exploits by claiming that he will raise additional $100 billion fund every few years and spend $50 billion per year.

This capital logically would flow into what he knows best – technology and the best technology money can buy.

Lately, Son said it best of the performance of the Vision Fund saying, “Results have actually been too good.”

So good that after this June, Son changed his schedule to spend 3% of his time on his telecom business down from 97% before June.

His telecommunications business in Japan has turned into a footnote.

It was just recently that Son’s tech investments eclipsed his legacy communications company.

Son vies to rinse and repeat this strategy to the horror of other venture capitalists.

The bottomless pit of capital he brings to the table predictably raises the prices for everyone in the tech investment world.

Son’s capital warfare strategy revolves around one main trope – Artificial Intelligence. 

He also strictly selects industry leaders which have a high chance of dominating their field of expertise.

Geographically speaking, the fund has pinpointed America and China as the best sources of companies. India takes in the bronze medal.

His eyes have been squarely set on Silicon Valley for quite some time and his record speaks for himself scooping up stakes in power players such as Uber, WeWork, Slack, and GM (GM) Cruise.

Other stakes in Chinese firms he’s picked up are China’s Uber Didi Chuxing, China’s GrubHub (GRUB) Ele.me and the first digital insurer in China named Zhongan International costing him $500 million.

Other notable deals done are its sale of Flipkart to Walmart (WMT) for $4 billion giving SoftBank a $1.5 billion or 60% profit on the $2.5 billion position.

In 2016, the entire venture capitalist industry registered $75.3 billion in capital allocation according to the National Venture Capital Association.

This one company is rivalling that same spending power by itself.

Its smallest deal isn’t even small at $100 million, baffling the local players forcing them to scurry back to the drawing board.

The reverberation has been intense and far-reaching in Silicon Valley with former stalwarts such as Kleiner Perkins Caufield & Byers breaking up, outmaneuvered by this fresh newcomer with unlimited capital.

Let me remind you that it was once considered standard to cautiously wade into investment with several millions.

Venture capitalists would take stock of the progress and reassess if they wanted to delve in some more.

There was no bazooka strategy then.

SoftBank has promised boatloads of capital up front even overpaying in some cases in order to set the new market price.

Conveniently, Son stations himself nearby at a nine-acre estate in Woodside, California complete with an Italianate mansion he bought for $117.5 million in 2012.

It was one of the most expensive properties ever purchased in the state of California, even topping Hostess Brands owner Daren Metropoulos, who bought the Playboy Mansion from Hugh Hefner in 2016 for $100 million.

If you think Son is posh – he is not. He only fits himself out in the Japanese budget clothing brand Uniqlo. He just needed a comfortable place to stay and he hates hotels.

SoftBank hopes to cash in on its $4.4 billion investment in WeWork, an American office space-share company, proclaiming that WeWork would be his “next Alibaba.”

The company plans to shortly go public.

Son continued to say that WeWork is “something completely new that uses technology to build and network communities.”

Other additions to SoftBank’s dazzling array of unicorns is Bytedance, a start-up whose algorithms have fueled shot form video content app TikTok.

The deal values the company at $75 billion.

They have been able to insulate themselves from local industry giants Tencent and Alibaba.

Son has revealed that the Vision Fund’s annual rate of return has been 44%.

Cherry-picking off the top of the heap from the best artificial intelligence companies in the world is the secret recipe to outperforming your competitors.

At the same time, aggressively throwing money at these companies has effectively frozen out any resemblance of competition. Once the competition is frozen out, the value of these investments explodes, swiftly super-charged by rapidly expanding growth drivers.

How can you compete with a man who is willing to pay $300 million for a dog walking app?

This genius strategy has made the founder of SoftBank the most powerful businessman in the world.

Son owns the future and will have the largest say on how the world and economies evolve going forward.

January 3, 2019

Mad Hedge Technology Letter
January 3, 2019
Fiat Lux

Featured Trade:

(HOW TO TAKE OVER THE WORLD),
(SFTBY), (BABA), (NVDA)

How to Take Over the World

The wild west of the data wars is spawning into an all-out, gunslinging shoot-out with a winner-takes-all mentality.

This slugfest is reminiscent of the unregulated 19th-century American oil barons whose clout and complete control of the supply of oil fueled the industrial revolution that drove America’s economy to the top of the global food chain.

Yes, data has become the oil of the 21st century. It is the oxygen of the next leg of the Internet revolution.

And there is one man moving early to stake out the premium real estate of our futures: SoftBank’s Masayoshi Son.

His $100 billion SoftBank Vision Fund is not only creating waves in Silicon Valley but tidal waves.

Many countries, such as Iran, Saudi Arabia, and Russia, still rely on petroleum for the lion’s share of government revenues. Saudi Arabia is attempting to wean themselves from the reliance on oil, but teething pains are sprouting up everywhere.

The choreographed killing of former Saudi Arabian dissident Jamal Khashoggi at a Saudi Arabian Embassy in Turkey will have many unintended consequences to the future economy further delaying the supposed pivot to a legitimate knowledge economy.

Oil prices crashing offers less financial support to make this pivot even possible.

Even though oil is still integral to the growth of the global economy, there is a new sheriff in town: big data.

Cut it up any way you want, data is simply information, the “zeros” and “ones” that make up the digital world. The information that commands mouthwatering premiums these days can be unraveled by computers.

Computer-deciphered data can show behavioral and consumer trends in stark daylight, helping companies ferret out business strategies that are proving immensely powerful.

There is an exponential hockey stick effect going on here. As the quantity of data accumulates, the more valuable it becomes.

The types of data being collected are personal data, transactional data, web data, and sensor data used for IoT (Internet of Things) products.

Who is the major player vacuuming up this data?

Masayoshi Son, the CEO of SoftBank (SFTBY), is an ethnic Korean who grew up in a small village in Japan. He transferred to Serramonte High School on the San Francisco Peninsula as a bustling youth and graduated in three weeks.

He was and still is that brilliant.

Son ventured on to UC Berkeley majoring in economics and computer science. He is one of the most dynamic people in the world and has amassed personal wealth of around $25 billion.

A few of his brilliant preemptive strikes were seed-investing in Yahoo, creating Yahoo Japan, and a $20 million for a stake in Alibaba (BABA) in 1999. These investments increased more than 100-fold in value.

Son is on a mission to own or control assets that are the linchpin to global growth nourished by Artificial Intelligence in selective industries such as transportation, food, work, medicine, and finance.

The solid anchor that ties all these firms together is the massive hordes of harvested data which are central to directing how future automated robots and machines perform.

His goal envisions the construction of responsive robots that will emerge as the cash cow in 2045. The construction, utilization, and high performance of these machines will be the key to his vision.

Instead of splurging for premium human data, investors will be competing for the best performing robots and the data derived from them. Accurate human data will provide the springboard to the machine data these robots will generate.

After the first generation of robots endows us with their first batch of data, all human data will be irrelevant. Human information is the test case on which robots are founded.

Once the first cohort of robot data comes to market, the second generation of robots will be derived off the first generation of robots.

Humans and the data generated from us will become irrelevant.

Once you marry the treasure trove of data with A.I., the results will enter the realm of today’s science fiction. Imagine being the first CEO to bring functional robots to mass market and how valuable that first tranche of robot data would represent.

Priceless.

Son is positioning himself to organically engineer the highest-grade robots catalyzing the next gap up in global competition.

This year, Son is on a global treasure hunt to meld together the most precise “big data” he requires to build his robot squadron that will take over the world.

The fight these days is acquiring the oxygen to power these non-human contraptions. Without pure oxygen, i.e. massive amounts of data, engineers will create faulty, error-prone robots that underperform and are less valuable.

Looking at the amalgam of companies in which Son has bet on, it is difficult to decipher any rhyme or reason. That is until you find the commonality of big data.

Son invested $200 million in “Plenty” in July 2017, a company developing indoor farms. If indoor farm data is not diverse enough, then how about the $300 million he showered on the San Francisco dog-walking app called “Wag.”

The biggest holding in the SoftBank Vision Fund is Uber. For those without an Internet connection, Uber is ubiquitously known as a ride-sharing company that shuttles passengers from spot A to spot B.

Sweetening the deal was a substantial discount the Vision Fund received on a private placement of Uber shares. Uber is now worth about $70 billion and may someday become a FANG in its own right.

Supplementing this transaction is the custom online map app Mapbox, founded as a competitor to Google Maps. Some of Mapbox’s partners include SnapchatLonely Planet, and The Weather Channel.

Vision Fund’s second largest position is ARM Holdings which is an English semiconductor chip company that has carved out a large segment of the Android and laptop market.

It produces simple CPUs (central processing units) and much more advanced GPUs (graphics processing units) that are placed in smartphones, TVs, tablets, and computers.

Son has shelled out $8.2 billion through the SoftBank Vision Fund already, and the remaining 75% stake is owned by parent company SoftBank Group. ARM is one of the shining beacons of European tech and SoftBank has pegged its future to its success.

There are even whispers of a second $100 billion vision fund lurking around the corner.

Unsurprisingly, Nvidia (NVDA) is the third-largest weighting, and the $5 billion SoftBank investment into Nvidia (NVDA) represents a 4.9% stake in the company. The Nvidia commitment is logical considering ARM licenses its chip designs to Nvidia.

As autonomous vehicles will be one of the first benefactors from the cross-pollination between big data and automation, these investments completely justify Son’s long-term vision.

Son has also snapped up other ride-sharing entities such as Didi Chuxing in China, Ola in India, Grab in Southeast Asia, and 99 in Brazil.

Some 31% of the global population is without Internet connectivity. Thus, Son bought OneWeb which pioneers low-cost, high-quality satellites striving to grant Internet access for the people still without access. This maneuver will surely see his net data load increase.

In many of the Mad Hedge Technology Letters, we often offer readers the creme de la creme of public stock symbols, but this time it is different.

First, the major holdings in the SoftBank vision fund, aside from Nvidia, are privately held companies that do not trade on any stock market.

However, it is very important to watch what he buys as it gives insights into the best-performing, fastest-growing sub-sectors of technology and a comprehensive barometer or tech risk appetite from higher echelon VCs.

Or you could just buy SoftBank itself whose shares have doubled over the past two years.

Giving further color to the backstory, not all is doom and gloom for Saudi Arabia as they have invested heavily into the Vision Fund giving Son a key source of financing.

Son’s relationship with the Saudis is important to spearheading a 2nd Vision Fund which he hopes to deploy shortly.

Readers must not forget that 40% of the $100 billion constitutes debt and must be serviced forcing Son to supercharge the growth of the companies he purchases to maintenance his monthly debt bills.

Son won’t just flip these companies for a 30% or 50% profit. Tenfold, or hundred-fold gains are the order of the day and that is exactly what he has been successful at.

In reality, Son’s ultimate goal is to leach out the future aggregate data spewing from his underlying portfolio and cross-pollinate it with A.I. and automation to revolutionize the world while becoming the richest man in the world.

As 5G is literally on our doorstep, Son, large tech firms, China, and the rest of the VC universe are jockeying with each other and staunchly positioning themselves accordingly for the next 30, 40 and 50 years.

Welcome to the future and good luck.

 

 

 

Will the Alibaba IPO Blow Up the Market?

The biggest initial public offering in history is about to be issued by Chinese Internet commerce giant, Alibaba. The floatation, which could raise as much as $18 billion in cash, could value the total company as high as $220 billion, making it the fifth largest company in the US.

The big question now facing equity strategists around the world is whether the Alibaba issue is so big that it will destroy the market?

It certainly is a fair question. Some 44% of the IPO?s that have taken place this year are now underwater. The bloom has clearly gone off the new issue rose, especially for tech issues. If portfolio managers sell $18 billion of other stocks to buy the offering, it could literally suck the life out of an already fragile market.

Alibaba should have done their deal in January, when these deals were still hot. Did they miss the window?? It seems so.

The Chinese Internet juggernaut has another problem, what I call the ?Apple disease.? At $220 billion the company is so big that there is not enough money in the world to get the share price up substantially from the opening print.

Like Apple, it may become one of those behemoths that is permanently cheap, endlessly trolling the bottom of traditional valuation ranges. That frustrates the hell out of value investors. Multiple expansions never happen.

More than eye opening was the 2,300 page registration statement the company filed this week with the SEC. It included financial data for the last nine months of 2013. We learned that revenues were $5.66 billion, net profits were $2.85 billion, and the company is husbanding $7.88 billion in cash. Fair value should come to $40-$50 a share. Not bad for a communist country!

Most amazing are the 48% operating margins that the company is claiming. If true, they make competitors Amazon (AMZN) and eBay (EBAY) appear wildly overvalued.

The firm?s customer base grew by 44% YOY to 231 million last year. Chinese Internet usage generally is expected to soar from 618 million to 790 million by the end of 2016, up another 28%.

Yahoo (YHOO) paid a mere $1 billion for 40% of Alibaba in 2005, probably the only good decision they made in 15 years. After successive dilutions, the stake has fallen to 22.6%.

Yahoo really blew it when they passed on Microsoft?s (MSFT) offer to purchase the company for $31 a share just before the Great Crash, when it then plummeted to $8 a share. It was one of the worst calls I?ve ever seen, and a classic example of great technology innovators becoming lousy managers, and fall victim to hubris.

The sad thing is if you strip out the value of Yahoo?s Alibaba and Japan holdings, it is worth zero. That is probably a fair valuation given the depth to which the quality of the product has fallen. Mobile? What?s that?

The deal will make instant billionaires out of several individuals, most notably founder, Jack Ma, who is facing a $20 billion payday. Don?t you just love China!

Alibaba Ownership

34% Softbank
23% Yahoo
31% Others
8.8% Jack Ma-founder
3.6% Joseph Tsai-CEO

As for me, I?ll be passing on the IPO. It seems like the only time I get allocated shares in a new deal are when they fail. British Petroleum (BP) in 1987, ouch!

You can be sure Alibaba will be one of the most overhyped events in history, complete with dancing characters on the floor of the New York Stock Exchange (dancing pandas? Dancing soy sauce bottles?). After all, that is all it is good for, now that all the trading has gone online and is controlled by high frequency traders.

I am sure that there will be a later opportunity to buy much lower, such as we saw with the Tesla (TSLA) public offering in 2010, which dropped by half to $16 before the ink was barely dry. Then it was the ?BUY? of the century.

YHOO 5-7-14

SFTBY 5-7-14

TSLA 5-7-14

Top 25 IPOS

Jack MaMake Jack Ma an Offer

 

Alibaba

Pulling the Ripcord on Softbank (SFTBY)

The day I bought my second lot of shares in the internet giant on December 12 was the exact point where a year of upward momentum in this stock came to a juddering halt.

The shares have since been like an errant teenaged child who you keep giving the benefit of a doubt until he goes out and steals a car. That is show business.

The immediate cause for the selloff was a downgrade of Alibaba by an unnamed Chinese internet analyst, in which Softbank is a major shareholder. The imminent IPO of Alibaba was the whole reason for owning Softbank.

It doesn?t help that the global emerging market rout has sent traders into ?RISK OFF? mode, especially in China. The doubling of Turkish interest rates overnight focused a great giant spotlight on the problem.

When in doubt, sell, especially stocks with funny sounding foreign names. ?Brave new world? technology stocks, like Alibaba, have been put on hold. A full handle move up in the yen against the US dollar to a new high for the year was further fat on the fire.

But what really tipped me over to the sell side was to see the Nikkei Average up a robust 2.70% last night, but Softbank shares drop by -1.30%. If it can?t catch a bid with this tailwind, it?s time to get out of dodge, or in this case, Kabutocho.

You knew this eventually had to happen. Since June, my Trade Alerts have enjoyed an almost unbelievable success rate of 90%. My followers have earned a +41.15% return on their capital, a multiple of what the market did. It was just a matter of time before I got slapped across the face with a fresh piece of sushi. But the entire world had to conspire against me to do it.

If you do have to lose money, this is the way to do it. By owning shares instead of options I was able to limit my loss to 2.86% off the back of a 14.3% fall in the shares. The trade was part of the general deleveraging that I have been implementing with my trading book since the end of 2013. It?s far better to have leveraged gains and unleveraged losses than the reverse.

No doubt, everything I predicted about Alibaba and Softbank will come true, and vast fortunes will be made by shareholders. But for the time being, we will have to restrict ourselves to reading about it in the newspapers from the sidelines.

SFTBY 1-29-14

SoftBankOuch!!

The Rising Drumbeat for Alibaba

Rumors hit the market Friday that Sprint (S) will mount a $20 billion takeover bid for T-Mobile (TMUS) in early January. The news caused a late day kerfluffle on what would otherwise have been a slow December pre holiday Friday.

The Shares of both companies immediately jumped 10%, which left many analysts scratching their heads. Normally, the shares of the acquirer falls (they?re spending money), while those of the target rise (they are selling for a premium to the market).

Why do I care about a minor US phone company? Guess who owns Sprint? Softbank, which took over the company for $21.8 billion last July, and carries a hefty 20% weighting in my model-trading portfolio.

The move would make Softbank one of the three largest US carriers. That will automatically trigger an antitrust review by the Justice Department, which blocked a similar takeover attempt for giant AT&T (T) earlier. Look at how Eric Holder stood in the way of the American Airlines-US Air deal, which both firms clearly needed to survive. And this is in a country with 100 airlines. So any decision here could be a long wait.

I think this is just an opening shot in a long campaign that eventually leads up to the Alibaba IPO, expected to be one of the largest in history (the biggest was also from China, the $128 billion deal for the Industrial Bank of China in 2010). Expect to hear a lot about Softbank?s role in all of this in coming months. This should be good for its stock price.

As part of the build up, my old employer, the Financial Times of London, named Alibaba founder and CEO, Jack Ma, as its Person of the Year. The paper chronicles Ma?s rise for abject poverty in Hangzhou, China, where he was the son of impoverished traditional performers, to becoming one of the world?s richest men.

Ma was fascinated by the English language at an early age, and used to listen to my own broadcasts on BBC Radio to learn new words (another one of my former employers). After graduating in 1988, he earned $12 an hour as a teacher in China. While working for the Foreign Trade and International Cooperation, he escorted foreign visitors to the Great Wall. One of them turned out to be Jerry Yang, co founder of Yahoo.

Thus inspired, Ma went on to found Alibaba in 1999. Its initial strategy was to match up Chinese manufacturers with American customers, an approach that proved wildly successful. He then took on Ebay. In the following years the US e-commerce giant saw its Chinese market share plummet from 80% to 8%, most of that going to Alibaba. Today, Alibaba has 600 million registered users, and one day in November it clocked a staggering $6 billion in sales.

The FT estimates its current market value at $100 billion. To read the rest of the FT profile, please click here. Its IPO will be one of the preeminent investment events of 2014. Better to get in early.

Followers of my Trade Alert Service will notice that this is one of the few outright equity trades that I have done this year. This is a way for me to deleverage my exposure after a spectacular stock market run. Equity ownership ducks the time decay that plagues call options, and avoids the leverage inherent in call spreads.

If the stock is unchanged over the holidays, it won?t cost me a dime. One thing is for sure. When the Alibaba IPO is announced, it will be a surprise. The only way to participate is to get in indirectly through a minority owner now.

Don?t expect an allocation from your broker, unless they think it is going o fail.

SFTBY 12-16-13

S 12-16-13

TMUS 12-16-13

Jack Ma Alibaba

My Market Take for the Rest of 2014

I can?t believe how fast the year has gone by. It seems like only yesterday that I was riding the transcontinental railroad from Chicago to San Francisco, writing my 2013 All Asset Class Review. Now 2014 is at our doorstep.

As usual, the market has got it all wrong. There is not going to be a taper by the Federal Reserve next week. If there is, it will be only $5-$10 billion, which means that $70-$75 billion a month in Fed bond buying continues. Either way it is a win-win.

However, managers are eternally loath to trade against an unknown, hence the weakness we are seeing this week. I think that we have entered another one of those sideways corrections that has been a hallmark of the market all year, and that there is a reasonable chance that we saw the low of the entire move down this morning at 1,780 in the S&P 500.

That sets up a dead, range trading market into the Fed decision next Wednesday afternoon. Once their Solomon like choice is out, it will be off to the races for the markets once again, probably all the way until 2014.

However, we are heading in the Christmas holidays, when volume and volatility shrivel to a shadow of its former selves, with daily ranges often falling within 50 Dow points. So it is important to have a large short volatility element to your portfolio.

That way, you will make money on every flat day, of which there should be many. That?s why I have 70% of my current model-trading portfolio invested in call spreads.

My current holding in the (SPY) has me profitable at all points above $175.68. If we move below that, any losses should be more than offset by profits thrown off by the rest of the portfolio. The same is true for my call spread in the financial ETF (XLF).

The Japanese yen is clearly in free fall, probing new lows almost every day. That should take the (FXY) to $95, and explains my triple weight 30% holding in the area. Bonds (TLT) just can?t get a break, failing to rally over $105 for the third time. Lower levels beckon, making my bear put spread look pretty good, my second one this month.

With a dramatically weakening yen, you have to add to Japanese equities, which will benefit hugely. That?s why I doubled up on my position in Masayoshi Son?s Softbank (SFTBY) this morning. The day they announce the Ailibaba IPO, probably early next year, these shares should be up 10%-20%.

To summarize, this portfolio is perfectly set up for the following: ?A sideways move for four more trading days, then an upside breakout after the Fed decision, then going to sleep inside a slow grind up over Christmas and New Years.

The grand finale should come on January 2, the first trading day of 2014, when I expect the value of the portfolio to pop a full 5% or more. This will be delivered by a massive new wave of capital into the markets, which for calendar and legal reasons couldn?t be invested until this day.

What will they buy? Everything that worked last year. After all, that?s why these managers were hired. Why not start the New Year with a bang, and then spend the rest of the year trading against that profit.

It certainly worked this year.

PerfChart

MHFT Trading Book

SPY 12-12-13

TLT 12-12-13

FXY 12-12-13

AAPL 12-12-13

SFTBY 12-12-13

Zephyr

JT & conductor

JT at workHas It Been That Long?

Doubling Up on Softbank

I have always been a big fan of buying a dollar for 30 cents. That appears to be the opportunity now presented by the Japanese software giant, Softbank (SFTBY).

This gorilla of the Internet space was founded and run by my old friend, Masayoshi Son, who many refer to as a combination of the Jeff Bezos and the Bill Gates of Japan. I have known Mas, as his friends call him, for 30 years, meeting him, of all places, at a University of California Alumni Association meeting. Mas received his BA in economics from Berkeley in 1980.

In three decades, Mas has turned an obscure, hard copy Japanese computer hobbyist magazine into today?s massive online empire. You may know him as the organizer of the huge Comdex conferences in Las Vegas every January, the Woodstock of technology gatherings. Today, Mas has an estimated personal net worth $9 billion, not bad for a kid who wore the same pair of ragged Levis to his economics classes every day.

The really interesting thing about Softbank right now is not what Mas is doing, but what he owns. That includes a 37% stake in the Chinese Internet giant, Alibaba, which boasts an overwhelming 80% market share in the Middle Kingdom.

The Hangzhou based Alibaba is actually a group of Internet-based e-commerce businesses including business-to-business online web portals, online retail and payment services, a shopping search engine and data-centric cloud computing services. Think of it as Amazon (AMZN), eBay (EBAY), Google (GOOG), and Oracle (ORCL) all wrapped into one.

In 2012, two of Alibaba?s portals together handled 1.1 trillion Yuan ($170 billion) in sales, more than competitors eBay and Amazon.com combined.
Its sales account for no less than 3% of China?s total GDP. Yikes! To learn more about their website please: http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html.

Online commerce in China is now growing faster than in any other place on the planet, including the US. Some 5% of retail transactions in the People?s Republic take place on the Internet, and that is expected to grow to 25% over the next three years. By comparison, it took online business in America 15 years to reach that market share.

What is happening in China now is truly fascinating. They are leapfrogging traditional brick and mortar stores, going straight from barter to online purchases, completely skipping the Wal-Mart stage of the retail evolution. I saw the same thing happen during the early nineties, when eastern Europeans jumped straight from having no phones to mobile ones, bypassing decades of unreliable and indifferent landline service.

The value of Alibaba is anyone?s guess as the company is still private. However, my former employers at The Economist magazine estimate that it is worth anywhere from $55-$120 billion. What this means is that you can buy Softbank now purely for the value of its Alibaba ownership, and get everything else the company does in the online universe for free.

But wait! It gets better. Softbank also owns major stakes in Yahoo, whose shares are up a gob smacking 157% since last year (Thank you Marissa Meyer!). It owns a major chunk of Sprint (S), which has gained a mind blowing 325% since 2012. Can Mas pick them, or what? Softbank also owns pieces of Japan Cellular and many other companies.

Add it all up together, and you get a Softbank that is worth at least $250 billion, almost triple its current $97 billion market capitalization. In other words, it?s a steal at this price.

Yes, you may say, this all sounds great. But how do I buy shares in Japan in yen? Easy. Softbank trades on the pink sheets in the US (hence the five letter ticker symbol) and is denominated in US dollars. Normally this means nothing, as liquidity in the pink sheets is notoriously poor.

Not so for (SFTBY), which saw 1.6 million shares worth $67 million trade around $42 a share on a slow Friday with a reasonably narrow spread. You may not be able to margin these, but at least you can get them. You also have some yen exposure here, as these shares are tied to the domestic shares in Japan. As for the big hedge funds, they have to go to Tokyo to get the size they want, and then hedge out their yen risk.

OK, OK, you say. Great story. But the road to perdition is paved with fabulous value plays that were never realized in the marketplace. This thing could stay cheap forever, like Apple (AAPL).

Aha! I got you! Alibaba is about to go public in the US, with Goldman Sachs now polling major institutional investors about potential interest. Given the chance to buy an Amazon clone at ten year ago prices, this IPO will be a blockbuster, making the recent Twitter (TWTR) float pale by comparison.

Did I mention that my buddy, Dan Loeb of hedge fund giant Third Point Partners, totally agrees with me, and has bought $1 billion worth of Softbank shares already? In fact, many believe that Alibaba could be the Apple of this decade, about to deliver a tenfold increase in its share price.

That seems to be the right thing to do this year.

SFTBY 12-12-13

YHOO 12-12-13

S 12-12-13

 

Masayoshi SonHitch Your Wagon to Mas

Time to Soak Up Some Softbank

I have always been a big fan of buying a dollar for 30 cents. That appears to be the opportunity now presented by the Japanese software giant, Softbank (SFTBY).

This gorilla of the Internet space was founded and run by my old friend, Masayoshi Son, who many refer to as a combination of the Jeff Bezos and the Bill Gates of Japan. I have known Mas, as his friends call him, for 30 years, meeting him, of all places, at a University of California Alumni Association meeting. Mas received his BA in economics from Berkeley in 1980.

In three decades, Mas has turned an obscure, hard copy Japanese computer hobbyist magazine into today?s massive online empire. You may know him as the organizer of the huge Comdex conferences in Las Vegas every January, the Woodstock of technology gatherings. Today, Mas has an estimated personal net worth $9 billion, not bad for a kid who wore the same pair of ragged Levis to his economics classes every day.

The really interesting thing about Softbank right now is not what Mas doing, but what he owns. That includes a 37% stake in the Chinese Internet giant, Alibaba, which boasts an overwhelming 80% market share in the Middle Kingdom.

The Hangzhou based Alibaba is actually a group of Internet-based e-commerce businesses including business-to-business online web portals, online retail and payment services, a shopping search engine and data-centric cloud computing services. Think of it as Amazon (AMZN), eBay (EBAY), Google (GOOG), and Oracle (ORCL) all wrapped into one.

In 2012, two of Alibaba?s portals together handled 1.1 trillion Yuan ($170 billion) in sales, more than competitors eBay and Amazon.com combined.
Its sales account for no less than 3% of China?s total GDP. Yikes! To learn more about their website please visit http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html.

Online commerce in China is now growing faster than in any other place on the planet, including the US. Some 5% of retail transactions in the People?s Republic take place on the Internet, and that is expected to grow to 25% over the next three years. By comparison, it took online business in America 15 years to reach that market share.

What is happening in China now is truly fascinating. They are leapfrogging traditional brick and mortar stores, going straight from barter to online purchases, completely skipping the Wal-Mart stage of the retail evolution. I saw the same thing happen during the early nineties, when eastern Europeans jumped straight from having no phones to mobile ones, bypassing decades of unreliable and indifferent landline service.

The value of Alibaba is anyone?s guess as the company is still private. However, my former employers at The Economist magazine estimate that it is worth anywhere from $55-$120 billion. What this means is that you can buy Softbank now purely for the value of its Alibaba ownership, and get everything else the company does in the online universe for free.

But wait! It gets better. Softbank also owns major stakes in Yahoo, whose shares are up a gob smacking 157% since last year (Thank you Marissa Meyer!). It owns a major chunk of Sprint (S), which has gained a mind blowing 325% since 2012. Can Mas pick them, or what? Softbank also owns pieces of Japan Cellular and many other companies.

Add it all up together, and you get a Softbank that is worth at least $250 billion, almost triple its current $97 billion market capitalization. In other words, it?s a steal at this price.

Yes, you may say, this all sounds great. But how do I buy shares in Japan in yen? Easy. Softbank trades on the pink sheets in the US (hence the five letter ticker symbol) and is denominated in US dollars. Normally this means nothing, as liquidity in the pink sheets is notoriously poor.

Not so for (SFTBY), which saw 1.6 million shares worth $67 million trade around $42 a share on a slow Friday with a reasonably narrow spread. You may not be able to margin these, but at least you can get them. You also have some yen exposure here, as these shares are tied to the domestic shares in Japan. As for the big hedge funds, they have to go to Tokyo to get the size they want, and then hedge out their yen risk.

OK, OK, you say. Great story. But the road to perdition is paved with fabulous value plays that were never realized in the marketplace. This thing could stay cheap forever, like Apple (AAPL).

Aha! I got you! Alibaba is about to go public in the US, with Goldman Sachs now polling major institutional investors about potential interest. Given the chance to buy an Amazon clone at ten year ago prices, this IPO will be a blockbuster, making the recent Twitter (TWTR) float pale by comparison.

Did I mention that my buddy, Dan Loeb of hedge fund giant Third Point Partners, totally agrees with me, and has bought $1 billion worth of Softbank shares already?

I?ll wait for a dip before I send out the Trade Alert. If I don?t get one, I may just throw in the towel and buy it at market.

That seems to be the right thing to do this year.

SFTBY 11-22-13

YHOO 11-22-13

S11-22-13

Masayoshi SonHitch Your Wagon to Mas