A Short Story On Softbank, Alibaba And WeWork (March 2020 Crash Edition)
Updated: Sep 6, 2021
This article was originally written on 3/19/2020 (a few days after the US went into lockdown and a few days before the market bottomed).
I talked to [someone I know, edited for confidentiality] last night and he asked if there were any stocks I looking to buy. I told him more SoftBank because it’s so much cheaper relative to Alibaba. Then he mentioned he’d buy Alibaba if it went down to $150 a share. So it inspired this story:
A Short Story on Softbank, Alibaba and WeWork
While conversing with your coworker, he mentions that there are these sweet new sneakers on Nike’s website that he really wants to buy, but they’re $180 which he thinks are bit steep. “Getting those new kicks would be sweet, but I think I’ll wait until they go on sale. But if I can get them for $150, I’m totally buying them,” he tells you as he pulls the shoes up on his phone to show you how cool they look. Admittedly, they did look pretty cool.
Later that afternoon, you see an ad for those same shoes (because, yes, your phone is spying on you for targeted ads), but from some Japanese website you’ve never heard of before. You’re curious so you click on the ad and it brings you to a page that shows those shoes for sale. But it wasn’t just the sneakers for sale, it was actually a bundle package deal with several other lower-value items that came with the sneakers.
“Yo, get a load of this,” you call out across the cubical wall. “On this website you can get those Nike sneakers for only $62!”
“Wait, seriously? Lemme see that!” he exclaims as he jumps up from his desk to rush over to yours.
Reading off the webpage you say, “See you not only get the sneakers, you also get a pair of socks, a t-shirt, a leather belt and even a pet gerbil! That’s crazy that you get all of that for way cheaper than the shoes themselves!”
After pausing for a second to take in the information, your coworker replies, “But I don’t really want a pet gerbil. I’d have to feed it. Plus it could die and I’d be sad.”
You think to yourself *Really, you’d be sad? That’s your reason, are you s****ing me?!?* But of course being the well-mannered person you are, you instead say, “Um, okay. Just forget about the pet gerbil. Get rid of it or feed it to your neighbor’s pet snake. Even if you have to pay someone to get rid of the gerbil, who cares. Discount the pet gerbil and Focus. On. The. Sneakers. You’re getting the shoes you want plus some other stuff for only $62! How is that not a great deal?!”
“Yeah, I don’t know. I think I’ll just wait until it goes on sale at Nike.”
One week later you say to your coworker, “Hey, I saw Nike had a 15% off everything sale online. Did you get the shoes you wanted?”
“Nah, man, it didn’t quite hit the $150 threshold that I was looking to buy it at. ((Note: 15% off of $180 is $153.)) But then the next time I looked at it, the price went up to $200 and I was like, ‘fiddlesticks, I’m not paying that much’. So instead I took my $150 to Whole Foods and bought enough groceries for the next 3 or 4 days. Plus they had these organic, chemical-free, cleaning wipes for $36 a pack that I had to buy because you can’t find cleaning supplies anywhere else thanks to the coronavirus.”
“Ok, bro, I was just trying to help you out. But it’s your money, so… you do you.” Meanwhile your mind is conjuring up images of Jackie Chan memes.
Three weeks later (after the coronavirus panic settled down) you walk into the office with a little more pep in your step wearing those same sneakers that your coworker wanted. They were pretty sweet and you only paid $62 for them. Plus you have a new pet gerbil named Ke$ha that you’ll probably forget to feed, but whatever. *Maybe I just give it to my little cousin for her birthday* you ponder.
At the time of writing this on 3/19/20 Alibaba stock was priced at ~$180 per share. SoftBank which had a market cap of ~$50B owned ~$145B worth of Alibaba. Therefore buying ~$62 worth of SoftBank stock not only gets you the equivalent of 1 BABA share, but also a bunch of other stuff including SoftBank itself, Sprint stock which will soon merge with T-Mobile, some WeWork and much more. Yes, SoftBank did overpay for WeWork but the value of WeWork could fall to zero and it doesn't really matter because that has already been more than fully discounted in the share price. Remember you are paying the bundle price. Focus. On. The. Alibaba. That’s where the bulk of the value lies. Obviously this story is a very simplified analogy for the situation that SoftBank is in. You have to consider its debt load and tax implications and growth and valuation and markets, etc. So do your due diligence and invest wisely.
Edited on 7/5/21: as 7/2/21 Alibaba is trading at $217.75 while SoftBank is trading at $35.21. On the day I initially wrote this (3/19/20), I sold 22 shares of BABA at $182.37/sh and used the proceeds to buy 316 shares of SFTBY at $12.67/sh. Since then BABA has underperformed the market during that time, meanwhile SFTBY is up 177.9%. Also since then I've trimmed back my SFTBY position and re-bought a BABA position as the relative value has shifted.
Also my prediction that the coronavirus would blow over soon and people would be getting back to the office was waaaaaaaaaay off from reality. That just shows that 1) I can't predict the future better than anyone else and 2) panic selling your investment account because the world is turning upside-down is usually a bad idea. So far the market has always recovered from negative events.