Why did SoftBank sell so many Coupang shares?

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SoftBank‘s (OTC: SFTB.Y) Vision Fund held a 37% stake in Coupang (NYSE: CPNG) when it went public in March. The investment arm of the Japanese conglomerate had accumulated this massive stake in the South Korean e-commerce leader over the previous six years.

SoftBank’s investment appeared to be paying off at first. Coupang stock opened at $ 63.50 per share on day one of trading, well above its IPO price of $ 35, and hit an intraday high of $ 69 before closing at 49, $ 25. However, the stock then slipped below its IPO price amid concerns over its post-pandemic slowdown, ongoing losses and obscure expansion plans.

Today Coupang shares are trading in the $ 20 range, but remain a divisive investment. Last month, SoftBank sold 57 million shares of Coupang at an average price of $ 29.69 per share for total proceeds of $ 1.69 billion. SoftBank still holds 568.2 million shares after the sale, but this massive divestment at a 15% discount from its IPO price should trigger some red flags.

Image source: Getty Images.

Let’s take a look at why SoftBank sold so many Coupang shares, whether those sales indicate that the stock is becoming a risky investment, and whether investors should expect SoftBank to keep selling additional shares in the future.

Why did SoftBank sell $ 1.7 billion in Coupang shares?

SoftBank’s two Vision funds, SVF1 and SVF2, hold stakes in dozens of growing companies. SoftBank owns its stake in Coupang in SVF1, which also owns investments in other publicly traded technology companies like DoorDash, Uber, DiDi GlobaI (NYSE: DIDI), Complete Truck Alliance, and Open door.

The value of SoftBank’s investment in Coupang had increased tenfold by the end of March, making it SVF1’s top performing investment. Coupang was still SVF1’s top performing investment at the end of June, but its gains were gradually fading as its share price stagnated.

On June 30, SoftBank’s investment in Coupang was still worth 8.7 times its original value. But here’s how Coupang’s stock has performed since then:

CPNG Chart

Source: YCharts

This steep drop likely forced SoftBank to lock in some of its gains. However, SoftBank’s remaining stake indicates that it has yet to give up on Coupang.

SoftBank also likely took profits on Coupang to offset losses from its other troubled investments. These losers include Greensill Capital, a UK supply chain finance start-up that collapsed in March; DiDi Global, the leading provider of ridesharing services in China, which was derailed by a government crackdown shortly after its IPO in June; and its remaining stake in Ali Baba, who was convicted by an antitrust investigation and a record fine.

A slew of negative headlines on Coupang – including a warehouse fire, protests over his working conditions and its founder’s hasty decision to relinquish his national posts to focus on the overseas expansion of the company – may also have influenced SoftBank’s decision to sell.

Will SoftBank continue to sell its stake in Coupang?

Coupang’s revenue rose 93% to $ 12.1 billion in 2020, and analysts expect its revenue to grow another 57% to $ 19 billion this year. Those are high growth rates for a stock that is trading at just 2.6 times this year’s sales.

However, Coupang’s stock is cheap as it still faces many uncertain challenges. It remains deeply unprofitable and continues to expand its ecosystem in South Korea with capital-intensive services such as expedited shipping, grocery and restaurant deliveries, and even streaming videos.

It is already the market leader in South Korea, but it is unclear whether its overseas expansion plans for Taiwan, Japan and Southeast Asia will bear fruit, especially when all these markets are all dominated by other companies.

Coupang’s future may look bleak, but his stock also looks too cheap to sell right now. It’s easy to see why SoftBank would want to take a profit after reaping massive gains from Coupang over the past six years, but I doubt it will liquidate the rest of its position until I see how the company’s ambitious expansion plans. business at home and abroad take place.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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