Softbank owned semiconductor and software design company Arm Holdings filed for IPO a couple of days ago. Arm was taken private by Softbank for $32B in 2016. SoftBank confirmed in the filing that it acquired a 25% stake in Arm from Softbank’s Vision Fund recently for $16.1 billion, valuing the company at $64B. I suppose this is a way for Softbank to anchor the IPO price and to capitalize on the AI boom.
The $64B valuation seems excessive though. As shown above, the company made $2.679B of revenue for FY 2023, a 0.89% decrease YoY. Net income for FY 2023 was $524M. How much do you think a semiconductor company with $2.7B of annual revenue with no growth and $500M of profits worth? Nvidia’s revenue for FY2024 will be around $50B with $20B+ of net income and 50+% annual top-line growth. Hence, NVDA 0.00%↑ ‘s price to revenue ratio is 23.3 and price to net income ratio is 58.25. If we generously apply the same multiples for ARM, the valuation will be $62.42B based on revenue and $29.1B based on net income. Given ARM’s lackluster growth, $64B seems quite optimistic. I wonder how Softbank shareholders feel about the ARM transaction. It’s likely that Softbank shareholders can get a better deal by participating in the upcoming IPO directly.