Share prices of Japanese conglomerate SoftBank dropped by more than 7 percent on Monday, wiping away more than $8 billion from the company's market valuation. The stock continued to plunge on Tuesday as investors slowly lost confidence in the company's latest investments.
The plunge came after news broke that Softbank Chairman and CEO Masayoshi Son had placed new bets on major tech stocks. According to a report from the Wall Street Journal, Softbank had apparently bought new options worth around $4 billion. The options are reportedly tied to underlying shares of stock the company already owns, including those of Amazon, Netflix, and Microsoft.
Softbank's previous shift to investing in tech startups had not been successful. The company managed to lose billions of dollars after its failed investments in startups such as WeWork through its $100 billion Vision Fund.
The latest investments made by Softbank are mostly on call options, which are contracts for an investor to buy a stock at a certain price. These types of investments only become profitable if share prices increase above the agreed-upon levels. Analysts have speculated that SoftBank's recent investments may have contributed to the recent Wall Street tech rally prior to the sell-off late last year.
The recent rally in tech stocks may have given SoftBank some trading gains over the past few weeks. However, analysts have noted that such bets are very risky as they could lead to steep losses if the trend reverses course. One report cited a banker who had described SoftBank's new strategy as "dangerous" as it could backfire if the equity market doesn't move in the direction they want.
Softbank's losses continued on Tuesday in Tokyo, with the stock closing at 5,845 yen per share. The stock closed at 6,333 yen per share on Friday and opened at 6,177 yen per share on Monday.
The new investments came as a surprise for most analysts given how SoftBank has been trying to increase its liquidity over the past few quarters. Last month, the company even sold part of its shares in its mobile carrier subsidiary SoftBank Corp. The deal netted the company 1.47 trillion yen or roughly $14 billion.
