SoftBank Group Corp (OTCPK:SFTBY) Q2 2021 Earnings Conference Call November 9, 2020 2:30 AM ET

Company Participants

Masayoshi Son – Chairman & CEO

Conference Call Participants

Sam Nussey – Reuters

Morita – TV Tokyo

Ryo Inoue – Asahi

Tatsuhisa Shirakabe – Nikkei Business

Phred Dvorak – Wall Street Journal

Kana Inagaki – Financial Times

Naotaka Owada – Nikkei BP

Shugo-san – Bloomberg

Noriyuki Hirata – Reuters

Wataru Suzuki – Nikkei Asia

Unidentified Company Representative

Thank you very much for waiting, everyone. Now we would like to start the SoftBank Group Corp. earnings results announcement for the 6-month period ended September 30, 2020.

First of all, we would like to introduce today’s participants. From left, we have Masayo Son, Chairman and CEO; Yoshimitsu Goto, Senior Vice President and CFO; Kazuko Kimiwada, Senior Vice President and Head of Accounting Unit.

This meeting is live broadcast via Internet.

Now I would like to invite Mr. Son, Chairman and CEO, to present you the earnings results and business overview. Mr. Son, please?

Masayoshi Son

My name is Son. Thank you very much for coming today.

The world COVID-19 situation hasn’t been settled yet, actually that we’ve been seeing second wave and the third wave. And we are still facing a lot of challenges ahead of us. Having said that, vaccines are under development, and hopefully, we will be able to see the good improvement of the situation worldwide. Especially this winter, vaccines for general public may not be available yet, hoping next spring to summer or by the time of autumn next year, hopefully, that we will be able to see the calm down of the situation worldwide.

Although that we are facing a lot of challenges ahead right now, I, myself, recently having some exciting moment personally because we’ve been seeing the great evolution of the era. And for such an evolution, how and where that SoftBank is going to — heading is something that I would like to share and explain to you using these opportunities.

What is SoftBank, what is us and where we are heading for is something that you may have as a question, so that, that I would like to touch on today with this opportunity now that I would like to go into my presentation.

So you see this picture, what do you think? There are people on the horse and buggy. This is a picture or drawing back in ancient age of Egypt that we found at the heritage. In Egypt, about 5,000 years ago, people were already using horse as a transportation tool in the past 5,000 years. Just about recently — just about 100 years ago, tintype photo, which was mass produced, this is a picture for the Ford. So the mass-produced automobiles are now available. And since then, we just spent about 100 years. So 5,000 years, horse and buggy; and 100 years history of automobile. And this automobile is going to be dramatically changing using AI.

Automobiles is going to be driving by itself. So we will be seeing autonomous driving just a few years ahead. Just a few years. Actually, one of our investees, especially GM Cruise and Nuro, those management, I had a meeting — a Zoom meeting with those — managements of those companies. And I was thinking it would take about 5 to 10 years for the autonomous driving. But actually, just a few years ahead, much earlier than I expected that this complete autonomous driving will be mass produced and available in the market. That’s the situation that we are looking at right now. So that availability of this autonomous driving is just in front of us, just a few years ahead.

So 5,000 years, horse and buggy; 100 years, engine-equipped car; and just a few years later that we see the complete autonomous driving. And this complete autonomous driving is available just a few years ahead.

And that’s why I said earlier that I am so excited to see the evolution of the era, and this is one good example of such evolution.

And let me go into the consolidated financial results. Actually, this time, only — I have prepared only 2 pages for the consolidated results. And actually, other pages, I will be speaking on the other agenda. So there are only 2 pages. And 1 — first page is about net income, 4.5x year-on-year basis. So last year — last fiscal year first half, JPY 4.2 trillion — excuse me, JPY 421 billion and this year, JPY 1.8 trillion.

And net income, if I go one by one to explain the reason, what is onetime gain what is a onetime loss, what is the continuous gains, that’s going to be complicated. But just to make the long story short, the biggest difference from the last year is the Vision Fund performance. Last year, first half, but you say — you see it may not change too much. Last year first half, about JPY 1.3 trillion. The last year — last fiscal second half was not very good, and this recovered so it came down to almost 0. But this fiscal year first half, again, we made a return profit and about — close to JPY 1.4 trillion. This is a sum of Vision Fund 1 and Vision Fund 2 total of the profit.

Especially this March, we made the biggest loss in the history of SoftBank. And such biggest loss because of the Vision Fund, WeWork issues and so on, so that people were expecting that we are making a big loss. But actually, rather, it was 0 in terms of cumulative gain profit and loss and now that we are back to the profit, again, to almost JPY 1.4 trillion. Other than that, this first half we had a merger of Sprint and T-Mobile and some other factors.

And financials. Net income, roughly, you can view that.

Operating income, I don’t need to explain and announce here anymore.

Then what is SoftBank? That’s the question, I believe. Since the foundation of the business, we never changed, which is this information revolution make happiness for everyone. So the corporate philosophy and the passion as a Softbank, although how we make that happen has been changing because in the beginning, we start with the distribution of PC software, publishing exhibits. So the personal computer culture was something that we were promoting back then so that they will penetrate. And then once we see the penetration of Internet that we start investing in Yahoo! and also investing in many Internet-related companies and businesses.

At that time that we just went public, in that moment, net income, operating income, we just don’t care about those and although that we were not making any money, but investing in those company. After then, we had the Internet bubble burst. We had a difficult time, but we survived somehow and now that here we are.

So how we do, how we work has been changing. But the one thing we never changed is the information revolution happiness for everyone so that we want to always be the member or number — member of the information revolution, especially last year our subsidiary of Telecommunication SoftBank Corp. went public and they made their own business and pursue their mission.

Then what happened to parent company because we don’t operate the business? What is it? That may be the question of yours. But in one word, I will say, this is an investment company investing in information revolution. In addition, from here on, although that it’s the same information revolution, but the information revolution of AI that will be our key whole focus.

So where we are heading for? We are heading for AI revolution, and we will be the investment company for AI revolution. So that’s the one and only key highlight for SoftBank and this is the way we are heading for.

So I want you to see this video, just about — just 1 minute-or-so video back in 2008. So about 12 years ago, this is an announcement we made back then at the earnings results announcement.

[Audio/Video Presentation]

Masayoshi Son

This is an important page and I believe this will be the key word continuously and I would say that we will be using this word frequently, so that’s why I wanted to share with you. The winner in mobile Internet is a winner in Internet. And the winner in Asia will be winner in the world. Those are the 2 key words.

I was young. But actually, I don’t have much hair. But then anyway — but anyway, I thought that I had even more hair, but put that things aside. Since 12 years ago, I’ve been saying this 1 page thing: winners in the mobile Internet markets are winners in the Internet market. Winners in Asia are winners in the world. This is something that I said about 12 years ago.

So in the past 10 years, I assume, what I had — I think, I was right in about this prediction. Looking at the performance of SoftBank, I believe I was right and that’s the route that we’ve been heading for the past 10 years. In the next 10 years, where we are heading for is that this thing, winners in AI are winners in the future. That’s how I feel for the next 10 years. Winners in AI are winners in the future. So that’s why we are becoming investing company in the AI revolution.

So although this is an earnings results announcement and only talk about 2 pages for the financials, and maybe I’m not too passionate about these 2 pages. Why? It’s because, actually, that I don’t stick to much about those numbers. Net income, JPY 1.8 trillion or something like that, that’s not something I put too much passion in.

What I have passion in is only this thing, net asset value, NAV. Only this thing that I’m pursuing and this explains — and this is a measure to explain the performance of SoftBank. Other than this, nothing matters. That’s why I only focus on this thing and run the company. That’s how I feel right now.

What is N-A-V, NAV? This is abbreviation of net asset value that we have some people from media and because this — due to the circumstance that we don’t invite the analysts, but we have just the media people so that do you know N-A-V, NAV? Anybody who knows about NAV, please raise your hands. Just 3 or 4 people. Maybe you are not very much familiar with the word NAV, but I would like to explain what is NAV.

And so far, SoftBank has been focusing on shareholder value. And I’ve been repeatedly talk about shareholders’ value in recent earnings results announcement. Shareholder value equals to equity value of holdings less net debt. That’s the shareholder value.

So this equity value of holding — shareholder value is net asset value. Actually, net asset value is equal to shareholder value. When I say NAV, looks like I come up with the new measures and try to use the convenient measures for me, not for you that sometimes other people criticize me about using new measures. It’s not any change, it’s the same measure. Shareholder value equals to net asset value.

So because we are the investment company, those asset holdings less net debt, that’s the net asset value. And this is — how much we increase, how much we decrease net asset value. That’s the only thing that we cares and we focus as a measure for — to see our performance of the company.

How rapidly we are growing in terms of the NAV or how much debt-heavy are we, so just 1 line of this math that we can measure SoftBank Group. So sometimes financial report and then you see some other reports that people may say that this is too complicated, you never understand. Some people say that amateurs should not be really putting any money in SoftBank, something like that. But that’s only because you look — doesn’t — you don’t look at the right place.

We are not complicated at all. Actually, we are too simple. Just this 1 line that you need to focus on. Other than that, those are just rounding errors.

Well, there are — of course, we are following the accounting rules, accounting procedures in an appropriate way. But when we have increased Alibaba shares, that doesn’t contribute our net income at all. But for example, those companies like Uber or those companies that go public, increasing share price, decreasing share price 5% or so, then that’s gently reflecting to our performance or financial reports. So that with the shares we held, sometimes it reflected to our net income, sometimes does not. What matters is because do we have more than 25% or not? Even we have 25%, if this is invested through the Vision Fund, that’s going to be reflected to our financial results, our net income.

So we are following all the appropriate rules of accounting procedure. However, that’s very complicated. But once you see this 1 line, you can understand what SoftBank is. So that this is the important measure to see the SoftBank performance.

So we have JPY 27 trillion equivalent of net asset value, which means we have assets held in total, JPY 31 trillion. Net debt is about JPY 4 trillion. And this net debt when you see the consolidated balance sheet, you may say that the SoftBank has more than that. But actually, we do have cash as well because we have a cash on balance sheet so that we can have debt, less cash, gives us net debt.

At consolidated balance sheet, you see SoftBank Corp. Domestic Telecom is also reflected. That makes you more complicated. However, that’s that. That’s also a public company, so that you can see their own financial numbers. But when you like to see the performance of SoftBank Group Corp., you just need to focus on this 1 line, so that you see the equity value holding less net debt. So this JPY 27 trillion of net asset value, how much do we increase? How much do we decrease? That’s how simple is that, and that’s JPY 27 trillion.

As of September end, it was around JPY 27 trillion or $258 billion. Six months ago, it was JPY 21 trillion. So the fast — excuse me, past 6 months, net asset value grew by about JPY 6 trillion. So net income increased by JPY 1.8 trillion. But when you look at NAV or net asset value, which excludes net debt, grew by JPY 6 trillion in 6 months. That best shows the performance of SoftBank Group.

But if you look at this in a longer term — well, before I talk about it, let me show you something. In the past 18 years, how Nikkei 225 performed. In last 18 years, Nikkei 25 grew by 2.1. There was a financial crisis and Japanese economy tanked and Abenomics put in place and economy has improved.

So what’s the driver of Nikkei average stock price? That includes interest rates, exchange rate, financial policy, corporate performances. Those are the factor behind stock market ups and downs. In other words, a lot of investors invest in changes. Changes include interest rate and who’s going to be the next President, for example. So investors make a decision whether they want to invest or not in changes. And investing in changes in terms of Nikkei 225 grew by 2.1x. And Dow Jones, again, grew by 2.7 while New York Stock Exchange churned better than Japan slightly.

And talking about the American stock market. Dow Jones is not the only index that you should look at. Nasdaq, where GAFA are listed, and Nasdaq grew by 6% — excuse me, 6x, so rather than 2.7x bigger. But the combining Dow Jones and Nasdaq, that’s how American market grew in the last 18 months.

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If you invested that JPY 1 million, you have JPY 2 million now. But if you invested JPY 1 million in Nasdaq, now you could have had JPY 6 million in Nasdaq. And there, I’m sure a lot of investors regretted and they thought that they wished they had invested in Nasdaq.

So in the same span, 18 years, Goto-san, for example, over there, we had a dinner on the weekend and I asked Goto-san whether you had employee stock option program. And Goto-san said, yes, I was in the program and he said that he invested by JPY 1 million. And now the value grew by 170 — excuse me, 157. So Nikkei grew by 2x, Nasdaq grew by 6x and SoftBank NAV grew by 157.

So this is the great performance that not only enjoyed by SoftBank employees. But back then, since SoftBank was listed company, anybody who invested in SoftBank could have enjoyed this great performance. I don’t know many people have SoftBank’s shares worth JPY 100 million, but I believe that you may have JPY 1 million worth of SoftBank share because our automobile cost JPY 2 million on average and I believe there are a lot of people running or driving vehicles worth JPY 2 million. So if you invested JPY 2 million in SoftBank stocks, you could have made to JPY 300 million. And I don’t think many reporters in this forum had a JPY 300 million worth of SoftBank shares.

So anyway, my point is SoftBank are — stock value grew 157x in the last 18 years.

Why? Well, in fact, Masa Son, myself, didn’t think about investing in changes. I did invest in evolution, not changes. If you invest in changes, the value sometimes goes up, but sometimes goes down. But if you invest in evolution, you don’t expect going down, really. That’s why it keeps going up.

Of course, there are some bumpy ride. We had some damage in the time of financial crisis, and Fed monetary policy may have had impact on our performance. But that’s negligent. Technology itself and industry itself has evolved. That’s why we can enjoy this kind of great performance. Again, our value grew by 157x.

More specifically, I showed you a video earlier. What I said 12 years ago, winners in the mobile Internet will be the winners in Internet, I said back then. At least for SoftBank, we started focusing on telecom and this graph shows a percentage of listed stocks and unlisted stocks, NAV JPY 27 trillion, I said earlier. Well, 90% of that accounts — listed stock accounts for 90-something percent. So those listed stocks are traded every day in the market. We can’t price ourselves those listed stocks. And our NAV listed stocks account for over 90%. We consider NVIDIA’s shares as listed stocks, by the way. But anyway, in our NAV, listed stocks account for 90%. And especially, like I said earlier, winners in the mobile Internet will be winners in the Internet. So in early days, we — I focused on mobile Internet.

Before iPhone was released, I traveled to see Steve Jobs and mobile phone will be tool for the mobile Internet communications. And I asked Steve to make a mobile phone that is most suitable in the Internet. And Steve said that, you don’t have to tell me because we have always started working on that. Anyway, for SoftBank, earlier, we focused on mobile Internet.

And another thing I said back then was winners in Asia will be winners in the world. In this portion of Internet, most of it is Alibaba. So becoming winner in mobile, becoming winner in Asia, that’s what we have been focusing on and delivering in the last 10 years, and consequently, we were able to grow our NAV 157x.

And later, we started working on Vision Fund. And when it comes to Arm, we decided to sell Arm to NVIDIA, which is a specialist in AI chips. And now we are the biggest shareholder of NVIDIA. So that’s a part of our strategy of investing in AI.

So I have been bragging about what we have done in the past. But when it comes to future, well, people would say that this is a tech bubble and this is peak. Whether it keeps going up or it starts going down, that’s something that shareholders are interested in. Should we expect going up? Should we expect going down or stay flat? That’s where investors are interested in. To be honest, they think that they don’t know. To me, I believe, I believe this will be like this. I can’t promise. Of course, I can’t promise share prices. This is what I believe. This is the vision I have and believe this line should go this way.

And Alibaba is currently Internet company, but it transforms into air company very rapidly using AliCloud. Alibaba wants to deliver a lot of things like AI-powered translation or recommendation. So AI companies will evolve into Internet company and Internet company will evolve into AI companies. So border line between AI and Internet will be blur. And Ken often said that, don’t forget telecom company. And not only telecom, but Ken’s company, SoftBank Corporation, that is trying to deliver beyond communication strategy.

And Yahoo!, which was owned by SBG in the past, but now owned by SoftBank Telecom and LINE will be merged with Yahoo! and Zozo is also part of our family. So those businesses, those companies will play a role in SoftBank beyond the carrier strategy so that they will drive transformation to AI.

So this color is intentionally blurred because borderline between telco, Internet and AI will be blur and blur. So anyway, my point is of course, we should expect some ups and downs slightly, but direction-wise, we are expecting this climb.

When I made this diagram, I thought I was conservative. But in my mind, I believe that this line should be more like explanation. That said, lots of debt or uncertainty around unlisted stock, derivative risk, those are 3 concerns people may have because sometimes people criticize me, Masa is too optimistic, Masa speaks too rosy. Again, lots of debt is one of the biggest concerns that people may have. And what Masa is talking about is just theoretical, not in practice. And it seems SoftBank Group started investing in derivative risk — derivatives and also unlisted stocks.

Let me address those concerns with numbers. Our LTV is 12%. We have holding value of JPY 31 trillion, and the net debt is JPY 4 trillion. And LTV is 12%. Let’s say you have JPY 1 million in savings and you have borrowing of JPY 120,000. Are you worried? 10% of LTV should be okay. In fact, we managed at less than 25% during normal times.

So what about unlisted stocks? Well, like I said earlier, 90% is listed stocks. We have only 8% of our net asset value, which is unlisted stocks. And again, our net debt as JPY 4 trillion and equity value holding is about JPY 31 trillion. We have been talking big since founding my company. So JPY 1 trillion, JPY 0.5 trillion, it’s just a marginal error to me.

Anyway, Ant IPO was covered in media recently. And our holding of Ant lost JPY 1 trillion in a few days. But anyway, SoftBank NAV every 3 months, we see some ups and downs by JPY 3 trillion or JPY 5 trillion. That’s a new normal for SoftBank Group. So don’t worry if NAV goes up or down by JPY 3 trillion, JPY 5 trillion. That’s not a big deal.

Equity value of holdings, it could change 5%, 10% in the market. Out of JPY 30 trillion of holding, if you lose 3%, that’s JPY 3 trillion. Even though trillion is a big number, but for SoftBank, it’s not as — not really a big deal. So anyway, of JPY 31 trillion of equity holding value, 91%, 92% is listed companies.

When it comes to unlisted stocks, most of them are held by Vision Fund and remaining is very small portion. So unlisted stocks held by Vision Fund is worth about JPY 2.6 trillion. Of total picture, this is small portion. Of course, we make sure that we calculate correctly and our result is audited by auditors.

We started investing in listed companies as a sort of pilot in order to increase efficiency of our investment performance. We started using derivative products as well. But derivative accounts for only 1% of our holdings. So when somebody says derivative, that sounds like very risky, but only 1% of the total value of the holdings. If it goes 1%, 2%, well, of course, we can enjoy only 1%, 2%. But if you fail still, damage is only 1%. So again, just a small, tiny fraction of the whole picture.

Because we started investing derivative products, I don’t remember it was Bloomberg or Wall Street Journal, I don’t remember who it was, that well in Nasdaq emerge. And that, well, I thought, were they talking about SoftBank? Well, 1% of our equity value holding, is it considered to be well in Nasdaq or maybe something that I should be impressed? Anyway, my point is the future of humanity is in AI.

Why AI? Why now? That’s something that I want to drill into. So in the computing world, there are 6 phases. The first phase, this is calculation or calculate. Very beginning, the computer was the calculating machine. Super computing machine equals to computer. And with lots of memories, it became the memorizing machine. So you can learn — you can memorize many things and then you can search. And search engine company became big like Google’s that becomes high value.

But from now on, this is not the only phase we are seeing. There are next 3 phases, which is to understand. Computer now have eyes and ears. Same as human, you can see — they can see. Same as human, they can hear. And they — when they see, when you hear, they understand what’s written in there. Recently, computer or AI, because they cannot understand, so that is why that human is better. And some people criticized AI, but probably that’s only — this person does not have a good understanding of AI, that’s how I would understand.

So why people start talking about limitation of the AI? That’s too funny because they don’t really understand the AI at all. So AI or computer, same as human being, they can — they start understanding things. And it’s not the end. They will infer. It’s not the end at all yet. They will create. So that’s the phase. Actually, those are the actually privilege of human beings, but the computer is now entering into such phase. They have not exceeded or go beyond human being yet, but they are about to exceed part by part. Some part or such areas that AI or computer is better than human, for example, Shogi, the Chinese Chess or Chinese Go or the weather forecast that those — actually, it’s not the human being things actually that even that fishermen don’t listen to the weather forecast person, but they look at computers to check the weather tomorrow.

Why this is a phase — this is the order of the phase? It’s because due to the computing power issue. There are 3 billion neurons in the brain. So this neuron, whether this is connected or disconnected, that’s how you calculate or that’s how you memorize or understand. In Japanese, humans brands remember like that.

Computers are the same thing, either transistor is connected or disconnected. They calculate, they memorize and they infer. That performance capability, the number of transistor was less, was not enough compared to a brain of cats or dogs or human beings. That is why the intellectual activity was not yet enough as human beings. Only because the number of transistor was not enough only because of the physical hardware issue, but that’s increasing exponentially and exceed 3 billion neurons and they are exceeding even more, not only CPU, but these days, GPU, which focus on AI or DPU is also available. And with all those, I believe that NVIDIA is coming. That is why that I think that the NVIDIA is coming.

NVIDIA on their research and survey, in the 4 years, GPU performance became 9x better. And also efficiency of learning algorithm became 8x in a year, just 1 year. And also cost of inferences in over 2 years won over 330,000 in 2 years. So that the 1 billion images, watching those images, whether this is fox, this is cats or this is dogs or tigers, lions, human beings learned based on their experience, you can categorize those. And computer, once that they go through 1 billion images, they can start categorizing those as well.

And to analyze 1 billion, they’ve been taking 100 million — JPY 1 million but the only 2 years became JPY 3. Then image analysis, much faster, cheaper and accurate than people are going to do. Neural network learning time — training time became 1/900 in 5 years. So as a result, computer world, CPU, GPU, DPU burnings or trainings and becomes even smarter.

So I said 6 phases, 6 steps: calculate, memorize and search; on top of that, understand infer and create. So actually, 1.24 comprehensions — reading comprehension better in computer than human beings. So some people say that the computer doesn’t have a comprehensive capability. But actually, in — compared to average human beings, reading comprehension, better in computer by 24%. They can understand what is written there.

Infer, 1,000x faster in terms of prediction speed for drug discovery simulations and so on. So we have Vision Fund investing in WeWork and some people criticized its big loss and so on. Vision Fund is end. Some people are already making us as a kind of end of activity, something like that. However, that’s not true at all. Actually, we are increasing in profit. Only in Vision Fund, they are making a profit and also investing in 96 companies.

For example, I would like to pick up several examples. We had a SoftBank World recently and I show — shared with the people with several images. For some people who have already watched them, that they may be a little bit redundant, sorry about that, but I want you to bear with me because many of you hasn’t — haven’t seen that yet.

So this is the delivery vehicle using AI, they understand the — or recognize road signs and obstacles. The speed limit is 40 miles an hour. So this is one-way sections. So such road signs, they can understand and also recognize obstacles. You may see that the big bus — in front of the big bus, walking — there are people walking, all of a sudden, that can be inferred. If there are people comes and crossing the road that they should be stopped, those infer or understanding that the car will set the strategy. I want you to see some video here.

[Audio/Video Presentation]

So like this, this is already used in United States. So when you buy something online, those goods will be delivered. You don’t have to carry by yourself. And this is running on the road and recognizing the signs. And if there is any bicycle kids that they can avoid or also infer that the people crossing the roads and so on so that they can be prepared. And actually, this is not only the imagination world. Actually, Domino’s Pizza, Walmart, Kroger or the CVS drug stores, they are already start making an official contract for delivery asking Nuro to deliver their goods and they are signing and start experiments. That’s the status.

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And there are some other companies, which we cannot disclose yet, but there are big logistics companies and so on also is going to be on the list as well. One another company is Cruise. This is autonomous driving and want you to see the video here.

[Audio/Video Presentation]

As you can see, there’s no driver. So the car drives autonomously. This video is shot quite recently with intelligence on electronic vehicle. This car stops at a stop sign and also it drives across roads and drive smoothly like this in highways. In small streets, of course, it can drive. And there are a lot of people passing by and the car turns left and right and person may just come out from a car. And also, it drives in a fog like San Francisco. So again, this is a first car without a driving seat. This is specifically designed. And in a few years, this vehicle should be mass produced. Again, this is a passenger vehicle without driving seat. Design is completed and now they are preparing for mass production. Again, in a few years, the car will start driving in public roads.

Well, in Japan, there are regulations. So autonomous vehicles can’t drive freely in Japan at the moment. Our car industry, I’m sure, is the biggest industry in Japan and there’s a huge supply chain around automobile industry. But there are a lot of restrictions and regulations that prohibit that can vehicle driving in public roads, something that the government should address.

Anyway, with autonomous driving, there’s a full truck alliance. One of our investees is fleet logistics company. And 4.4 million drivers — well, 90% of the truck drivers in China are working for this company. And with AI, delivery of goods, the concept — concept of delivery of goods is completely changed with only Cruise and Nuro carrying passengers, carrying goods, respectively. With those 2, only 2 companies, other are investees like Didi, DoorDash, Loggi, a lot of companies, those companies are the companies that Vision Fund invest in, those are related to logistics company. And those companies will be impacted by this Cruise and Nuro because they have to evolve.

But with them, those pink bubbles, we can support transformation of those companies, so transportation and logistics. The currently available service cost, and in few years, the autonomous vehicle that can transport and deliver people and goods, the cost would be dramatically lowered, maybe 1/5, 1/10 of cost. So carrying goods will be completely different in people’s mind. That will change people’s lifestyle, people’s mindset because if you order something, you can get it delivered within a day or hours or minutes at lower cost than the current cost. You don’t have to change your clothes to go outside and to buy things and to get them delivered. At the spur of the moment, you can just grab a smartphone and place an order and get it delivered immediately.

In the world of mobility, it accounts for 11% of global GDP. And in that space, completely, conventional wisdom will be changed. And this company, Beike, could got listed quite recently and what they do is to understand housing information and customer preferences and predict how much the deal will be successfully closed and recommend the best house. There is 230 million homes information in a database. This Beike’s database has information of home as many as 230 million and MAU is about 39 million. There are about 456,000 agents and the number of transactions in a year, 2.2 million or JPY 30 trillion worth of housing properties are traded. That’s the platform that has currently listed.

So in China, it’s amazing. AI shows everything that you want to see.

So AI recommends not only blueprint, but also furniture.

Interior design is recommended by AI. On this layout, since you are a couple in 20s, you may want to have this kind of furniture layout. So a lot of recommendations are made by AI. And then deal closing probability is growing up. We invested in this company, 140 — excuse me $1.3 billion. And as of now, the holding value is about $7.9 billion. That’s our investment done by Vision Fund.

SoftBank Vision Fund 2, we invest 100% in this — well, SoftBank Vision Fund is financed 100% by SBG. And it’s been less than 1 year and 8 months or so since we invested in this company. It has grown this much. And Biofourmis is also invested by SoftBank Vision Fund 2. And with AI, they project heart diseases. In America, not cancer, but cardiac disease is the #1 cause of death. And what if your family, yourself, knows in advance, 2 weeks in advance, that you will get heart attack or cardiac arrest. If you get that prediction, you don’t have to die. In fact, they’ve got database of 4.1 million patients and they got partners like Novartis and pharmaceutical companies and Mayo Clinic, AstraZeneca, those are the partners that this company has. And they’ve got plenty of data. So again, 14 days in advance they provide prediction. And accuracy rate is 99%.

So consequently, optimal dosage is available and rehospitalization is reduced by 90 — excuse me, 70% and cost of care is down by 38%. I think this is something that the Japanese government should pay attention to because we are suffering from very high medical costs. So with this prediction, cost of care goes down because people don’t get too serious about this.

So this is FDA approved. And not only patients, but also doctor — home doctor will be receiving such information so that the doctors will be able to communicate with patients or patients can communicate to doctors so that they can immediately get the treatment.

So only is medical area that to save the lives of people via Bio is also working for COVID-19 and Guardant working for cancer. So these are all medical-related AI companies.

And medical related, actually, 10% of the — 10% are the GDP of medical industry and also further creation is something that’s supported by AI. Not only are we understanding, not only inferring, but also creating is additional capability that AI has. But this is the AI experimental automation and also design of genetically modified microorganisms so that anything that has not been there in earth can be created. It’s like a gut area, I believe that dose creation is also available. And what to be used is that, for example, high-performance films for electric products or the optical films for next-generation electrics that is like folding smartphones, those kind of things and also natural insect repellent. So with those new NAND technology development, the cost can be 1/10 and the development period can be 1/2.

Another video here again.

So traditional way the same as COVID-19 that you use pivot and do one by one checking.

And this is a traditional way — traditional approach, the disposal chips that they will use. And actually, I myself went to this company and I looked at that. And this is — currently, the robot — robotics is actually helping. And here, microwave nonlittle — little level that pushing up by air and this drop will be pushed up to the case. And that can make a new combination. So it’s not by human hands. And sometimes it mistakes, but this is completely new creation.

The traditional Internet revolution mainly replace advertisement service. So traditional media to new media. So Internet actually replace the business model advertisement, especially GAFA, mainly focused on [indiscernible]. So for traditional or Internet revolution was that. But AI revolution is actually mobility of human beings or logistics, transportations, medical world. Also, fintech, financial engineering that can be also changed. Entertainment can be changed. So one after another, there are many things that can be changed. So I will be able to speak more and more or even longer and longer, I will be even more excited. I would like to — I’m so passionate talking about the company, but I just stop here for the examples.

But recently, SoftBank started investing in listed stocks. What are we doing? You may wonder what are we doing? And this is AI revolution. Actually, the leading AI revolution, not only the unicorns or unlisted stocks, they are also the rookies, new super stuff, new heroes for the AI revolution. But actually, there are already a listed company that who are really the hero already.

AI revolution that we want to be a supporter as an investor. And if we exclude listed company, who made that rule? And I myself actually any company that actually drives AI revolution, I don’t really care if it’s listed or unlisted, so that I would like to invest in those good players in such AI industry. Amazon, Facebook, recently that I’m using Zoom every day, having Zoom calls without overseas trip that having a call with those overseas people. So by investing such companies, and we have started it, the investing in listed companies of such companies, how much did we put the money in? That to be disclosed within a week or so, I believe, so in accordance with the rules in the United States that we will be disclosing the numbers. And that’s all.

So we are investing in listed stocks as well. And we have a baseball team, for example. Those rookies with high school graduates is not only the players, but we also get the players from Major Leagues. We also get the players from other teams. Combination of those that we can create a great and strong team. So listed securities is also 1 part of our combination. How we invest it, we use actual stocks investment and derivatives. And the proportion is JPY 1.8 trillion that we have already invested in actual stocks and JPY 0.4 trillion in our derivatives.

So this derivative is kind of a big — one optional, too. Sometimes they makes twice as much or 3x such gain, but sometimes a big loss compared to actual stock. So it has higher risks. But at the same time from us, Nasdaq whale that we’ve been called, but actually, this is just about 1% out of our total asset. So even it becomes 0 bust, too, this is — this can be a rounding error. So it will be even more big damage or impact to us if the 5% of movements in Alibaba share, as a matter of fact. So that’s how. For example, derivative with call option. Call option means it’s right to purchase shares in the future at current price, that’s the call option. We bought JPY 400 billion of call option. It could be 0 or it could be doubled. That’s investment.

So before we conclude, let me touch upon this. We’re going to change the management structure in order to strengthen corporate governance, which has been one of the biggest hot topics around the world, especially Masa. So you have to increase our corporate governance and you need to increase the percentage of external directors than internal directors.

Internal directors, some of them should be focusing on executing business and the directors should oversee them. So what we’re going to do is to separate management and execution function to strengthen its corporate governance so that we have a clear distinction between Board of Directors and corporate officers.

It’s not a breakup of the Board members. It’s not like Masa fires Marcelo or fires Rajeev, it’s not. We are not breaking up. We just want to make sure that there is a clear distinction between management and execution.

Conclusion. Just to recap. NAV, while net income maybe we achieved Japanese highest net income at least in 6 months term, it’s not really a big deal, rather we want to focus on NAV. And NAV grew by 157x in the last 18 years and NAV consists of 90% of listed stocks and the remaining unlisted stocks. And not only Internet, we’re going to make it grow in AI space. So the next 10 years, SoftBank is company investing in AI, to put it simply.

I showed you some videos earlier. And I did that because I wanted to get a picture, get a sense of what our message is all about. Winners in AI are winners in the future and the company investing in the AI evolution. So with that, when it comes to evolution, inventor alone can’t drive evolution. Inventor and somebody who takes risks and invest in that inventor is needed to drive evolution. So capital investors and inventor should go hand-in-hand to proceed evolution. So our role is to take risk capital to drive information evolution.

That’s all for myself talking about SoftBank’s direction in the future. Thank you very much for your attention.

Question-and-Answer Session

Operator

Thank you very much. Now we would like to open for questions.

So we would like to first take questions from the floor. [Operator Instructions]

Sam Nussey

My name is Sam from Reuter. Questions, so up to 2 questions.

Masayoshi Son

Can you leave it to 1 question per person because we have many people?

Sam Nussey

So MBO. There are media coverage regarding MBO that the Masa is considering. What do you think about MBO, management buyout?

Masayoshi Son

I have no comment.

Unidentified Analyst

[Morita] from TV Tokyo. Four years ago, after the President was elected, you went there to celebrate the new President and you said that you took that as opportunity to change regulations in the U.S. But with President-elect Mr. Biden, how do you see America as a place to invest?

Masayoshi Son

So like I said, that we focus solely on AI evolution from going on. Silicon Valley or America is, what I say, mecca of AI revolution whether our interest rate — or regardless of interest rate or regardless of who the President is, we want to continue investing in American market.

And also, China, I showed you one of our video clips, which is Beike, and also a lot of AI companies are born in Chinese market. And also, Southeast Asia and India, a lot of companies coming from those markets. So the center is America and China when it comes to our investment, which market we are going to invest more or remain the same for us to focus.

Ryo Inoue

My name is Inoue from Asahi Newspaper. In the previous earnings announcement, you said cash is the protection or defense and I believe that you talked about defense. And today, actually, you never talked about defense at all. JPY 4.5 trillion monetization program and actually you already achieved and exceed the target amount. And what is your position on the investment? Is defensive mode already finished? Are you going to be aggressively investing going forward?

Masayoshi Son

Thank you for your question. We have — we would like to be prepared with defensive mode, but at the same time like to be aggressive as well. Well, thankfully, at the end of March, we announced that we will be — we would like to have enough cash and set JPY 4.5 trillion as a target for the monetization program so that we dispose and monetize the assets. And many people actually that we don’t sell at all, but in the past 6 months we actually have monetized about JPY 10 trillion equivalent, including NVIDIA transaction.

So total, about JPY 10 trillion monetization program has already been completed. So the target was JPY 4.5 trillion. And assuming that the contract complete is the transaction complete, of course, we have to wait for the regulatory approval. But including the transaction of Arm and NVIDIA, that I would say JPY 10 trillion monetization has already completed. So that the defense is enough that we have enough cash to be defensive mode, and we are prepared. So with this affluent cash, we would like to continuously invest in AI revolutional companies and we would like to evolve ourselves as well one by one.

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Tatsuhisa Shirakabe

Shirakabe from Nikkei Business. About SoftBank Vision Fund 2, you mentioned that it’s been pretty well — going well. With this good performance, are you going to invite third-party investors? What’s your view?

Masayoshi Son

Well, Vision Fund 2 and Vision Fund 3, we are open always to third-party investors. But at the moment, we are not that popular yet. So in the meantime, we have JPY 10 trillion of our own capital so we are okay so far, but we have investors that we have been working with for a long time and we want to respect them. And again, we keep our doors open always.

Phred Dvorak

My name is Dvorak from Wall Street Journal. Relates to the previous question. JPY 10 trillion monetization has done and you will be proactive about investing. But how do you — are you going to use those money? Are you going to do more share buyback, for example, like JPY 2 trillion? Another share buyback are you considering such? Or are you going to invest in more money in Vision Fund? Or is there any other way of using proceeds? How you — or are you going to put money in the new management company to invest in tech industry? Or are you going to put money? There are articles regarding spec as well. How are you going to use those money?

Masayoshi Son

Yes. Thank you for your question. We would like to be balanced in terms of use of proceeds. And I would like to be — consider a variety of options available. So I would like to have our options available. That means we can be defensive, but at the same time, offensive. So in the previous announcement, we talked about the barriers for the horses and stuff like that. But actually, between those barriers, you have guns and you’ll be able to shoot and also protect yourself as well.

So there are 2 ways that you can do at the same time, defensive and offensive at the same time. So that’s important so that even if we are a defensive mode, but not forgetting about defensive and also achieving more than that we have predicted for the program. But at the same time, that we would like to be proactive from the variety angles and we would like to be ready with those options available. And I think that we have set the frame for that.

Unidentified Analyst

[Hota] from Nikkei. About new investments going forward, you mentioned 90% listed stocks. More specifically, what’s your view on investing in listed stocks? For example, regions or markets and percentage, 20%, 40% or more or small? Or is it long-term investment or short-term investment? So give us your view on investment in listed stocks?

Masayoshi Son

Well, we are running sort of pilot program when it comes to investing in listed stocks. And also, we made the names public those companies that we invested in. Stocks are very liquid, so if we make up our mind, we can quickly liquidate them in a few days. So it’s more like cash. It’s very convenient for us. And since it’s a blue-chip stocks, we don’t intend to own 10%, 20%. In Vision Fund, usually, on average, 20% ownership and usually Vision Fund is the leading shareholder of those investees. But when it comes to listed companies, listed stocks, maybe a few percent is ownership. I think it should be okay for us even a few percent. Since, again, those are blue-chip stocks, position will be reasonably big. And those companies’ management, especially CEOs, I know them personally very well. So from cluster of leading company strategy, I believe that it makes us easy to partner with them. But again, this is a test program, so we will see how it goes. So it depends on market cap, I think.

Unidentified Analyst

But is there possibility opportunity of merger?

Masayoshi Son

Like I said, we are an investment company, not an operating company anymore. So merging a business and controlling it is not something that we are interested in now.

Kana Inagaki

My name is Inagaki from Financial Times. Relates to the previous question. So talking about the listed securities and you said that you don’t have intention to control the company by acquiring such, but you have quite enough money and you try to make all the options available, not only the listed securities. But would you consider, for example, mobility discussion earlier, but would you consider acquiring 100% of the company or you wouldn’t think about that at all going forward?

Masayoshi Son

I don’t say it’s — I don’t deny the possibility. I don’t limit — I don’t want to limit myself. That will squeeze down our options. But 99%, I would say I don’t have any intention to acquire 100% of any company at this moment. Rather, I would like to keep the position of the investment company, promote the AI revolution. And for that, I believe that I’m not interested in being a President, CEO or Chairman of the operating company. That would very time-consuming as well and that’s a little bit tight for me.

Unidentified Analyst

[Nakako] from Toyo Keizai. Again, about listed stocks. You mentioned that you would be willing to take risks as a risk capitalist? There are a lot of retail investors and institutional investors that are already invested in those listed companies. But still, you as a SoftBank Group, takes risks in those listed stocks. Why is that? There are a lot of speculations around your investing in listed stocks. So who is responsible for listed companies investment?

Masayoshi Son

Well, since those are listed and most of them are blue-chip stocks, that means without SoftBank, without us, companies like Facebook and Amazon have been successful and will be successful. So a reason [indiscernible] for them may be not significant to them. But in a capital market, somebody like us keeps investing in those companies in a capital market. I think for them, it’s good because they can use that money for their growing business. And again, without us, they can be successful. But with us, capital market is something critical to them for their growth.

And Vision — SoftBank Group’s shareholders’ perspective, all in all, total net asset value, they want to see net asset value constantly grows. In the case of listed stocks, investors can directly purchase them without going through SoftBank Group. They don’t need Masa’s presence in investing in those listed stocks. But if you go through a SoftBank Group, you can purchase them at half a price because the SoftBank’s stock price is half of net asset value at the moment. So again, you can buy Amazon, Facebook and Alibaba directly. But through SoftBank Group, you can purchase them at half a price. Same stock, but at half a price. Not bad, I think. But who is responsible? And I myself get involved every day and we are organizing specialist team to do the job.

Unidentified Company Representative

So we do have questions from the Zoom. So that after you that we received a question from Zoom.

Unidentified Analyst

So my name is Igawa. How are you going to set the balance between United States and China in terms of investment because you have JPY 20 trillion out of JPY 30 trillion is Alibaba out of your portfolio. So under such circumstance, how do you see the political risk of China if you consider investing in Chinese market?

Masayoshi Son

Yes. Thank you. So that’s one of the consideration that because we are too much — there are people criticizing us depending on too much Alibaba and I think that is true. So that, that’s why that we would like to diversify through Vision Fund investments, and at the same time, not only unlisted securities because Alibaba’s growth is too much. So even that we invest in Vision Fund for unlisted securities, but Alibaba is growing even more, so that we’ll never be able to solve this proportion issue. So that is why that including listed securities, that we would like to change the balance in more appropriate way.

But at the same time, I’m a strong believer of Alibaba’s further growth so that not diversifying through us divesting Alibaba, but rather I would like to use Alibaba shares for the asset financing, appropriately manage those or using other optional financing scheme. So that we will be able to diversify the asset. Thank you.

Unidentified Company Representative

Okay. A final question from the floor before going to questions from Zoom webinar.

Unidentified Analyst

[Saito] from Nikkan Kogyo paper. Again, investing in stock — listed stocks, you started mentioning that recently. What was the background? What was the trigger for you to start looking at listed stocks?

Masayoshi Son

Like I said, 2 things. First, focusing on AI revolution and not only unlisted companies, but listed companies are major players in AI revolution. For them, AI revolution has just started, and in fact, GAFA will play key roles in AI revolution. So that’s why we wanted to have them in our portfolio. And also too much dependence on Alibaba, we want to optimize the portfolio balance.

Unidentified Analyst

I just want to confirm 1 thing. Monetization program of JPY 4.5 trillion, but we — you achieved more than that. And in the presentation, you showed that you had quite a lot of listed stocks as of end of September. So by using the result of the monetization program, you started investing in listed companies?

Masayoshi Son

Yes. Part of that money that we secured. And again, we could use stocks itself for asset financing. We still have some money left from the monetization program.

Unidentified Company Representative

Now I would like to take a question from online Zoom. So now that we are taking the question from Zoom participants, so Mr. Owada from Nikkei BP, please unmute yourself and start your question.

Naotaka Owada

Can you hear me okay?

Masayoshi Son

Yes, I can hear you.

Naotaka Owada

So I believe you are relocating your office to Takeshiba. And are you going to also move from Shiodome completely? Or is there some office remains in Shiodome? Or are you going to have new office, other in…

Masayoshi Son

I myself completely moved to new office, Takeshiba.

Unidentified Company Representative

[Shugo-san] from Bloomberg. And in the interest of time, we want to — well, we can take 3 more questions. But if you have some appointment, you can excuse yourself. Again, [Shugo-san] from Bloomberg.

Unidentified Analyst

About corporate governance. You announced a new Board of Directors, member and corporate officers. What kind of change we should expect from that? Marcelo and Sago-san and Rajeev, those were Directors, Board members in the past. But going forward, they are not anymore. So what does it mean to their authority? Do they have more power or less power?

Masayoshi Son

Well, authority levels stay the same. In fact, even in the past, even as a Board member, they present their idea and make proposal and other directors discuss them if the proposal is a good idea or not. Like they have done, they will present their ideas and proposal to the Board about new business and keep other directors informed on progress. That stay the same.

But percentage-wise, we had less percentage of external directors. But now we have more external directors than internal directors because Masa, myself, should be most supervised. And less internal directors mean better governance or stronger governance. We thought about that change in June, but we were not ready back then in June. And usually, we should wait until June next year when AGM is called. But instead of waiting until June next year, since we are ready, it’s better to do that because it’s a good thing to do. So that’s why 6 months before the next AGM, we decided to make this happen.

Unidentified Company Representative

We have — we will take 2 more person. Next person is Mr. Hirata from Reuters.

Noriyuki Hirata

My name is Hirata from Reuters. Can you hear me okay?

Masayoshi Son

Yes.

Noriyuki Hirata

So what is the pros and cons on being a listed company at SoftBank Group?

Masayoshi Son

Advantage or merit, we have lots. And also lots of disadvantage as well. There are a few for me. And we have both advantage and disadvantage. Are we concerned? There are many speculations, I understand, but we’re concerned and explore many. That’s for — that’s the answer.

Unidentified Company Representative

And last question, please? Suzuki-san from Nikkei Asia.

Masayoshi Son

It seems he dropped. So maybe next one?

Unidentified Company Representative

Okay. Move on to next question. Actually, last question, please wait for a moment. Or if Suzuki-san can come back again, we will — he’s welcomed. Suzuki-san is back now.

Wataru Suzuki

You mentioned that you have a lot of Zoom calls every day and you are well-known that you believe in your gut instinct when you make a decision around investment. But can Zoom calls are lively enough for you to stimulate your gut instinct? And because of this corona outbreak, it’s hard to see how long this kind of limitation continues. So how long do you expect this corona pandemic continues?

Masayoshi Son

Well, until fall next year, I believe that challenges from corona are with us. Until then, even with vaccine available, hopefully. But it takes time to have the vaccine very effective. So gradually, it’s getting better, but you can’t expect sudden sunshine, if you will.

But now I like better and better about the Zoom calls because whenever I go overseas trip, usually suffer from jet lags and sometimes waste of time. But without such long-haul trip, I feel better. Every year, I suffer from some sickness, but I’m not feeling bad at all and I can spend my time more efficiently and effectively. And Zoom is actually good because you can see the faces and you can see the presentation. You feel like talking to them in person in front of you. Even when I eat dinner, drink wine, I would do Zoom calls. So it’s like Zoom parties every day — every night.

And I think production is very efficient. Every week, when we make a decision in new investment and first meeting is over Zoom, of course, we got our team doing research in advance. But ultimately, I meet potential investees. And Zoom calls are very effective, I feel really a new normal, as a new lifestyle. And this new normal is more and more popular, I think.

Yes, I think that’s the all for questions. Thank you very much for staying till the end of the meeting. I believe that you have lots of questions about what is SoftBank and I hope I was able to answer, to some extent, of your questions and hope that you have little bit deepened your understanding on us. Thank you very much.

Unidentified Company Representative

Thank you very much. Once again, this concludes the SoftBank Group Corp. earnings results announcement for the 6-month period ended September 30, 2020.



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