The Economist (Apr. 14 - 20, p. 73-4) has a good story on Softbank (JP: 9984) (SFTBF.PK). The main point of the article is Softbank is bleeding cash, serious cash and there doesn’t appear to be an end in sight. It is attracting a lot of news these days because of its very aggressive pricing and marketing in the cellular phone business it picked up from Vodafone (VOD) — boy are they glad they got out. Anyway, the real winner among wireless communications service providers is KDDI (JP: 9433), which is growing both its subscriber base and revenue per sub. It also seems to be benefiting most from number portability, taking incremental market share from leader NTT DoCoMo (JP: 9437) (DCM). Let’s be fair and try to make some money here.

Softbank is undoubtedly a “sell.” But, with its aggressive revenue recognition practices and chances it might put up some big earnings, the stock could see a short-term jump. Therefore, Softbank is a trade, if you are looking for one and can stomach the volatility. It trades at 47+ times earnings on a trailing basis and nearly 11x book. If you are looking for an Internet and broadband related play with a different twist and one with a better valuation and higher growth potential, then we suggest one of our favorite Japanese stocks: Internet Initiative Japan (JP: 3774) (IIJI). Consider its ADRs, which are 1/400 of an ordinary share!

Always conduct your own due diligence. We are long IIJ ADRs, and own call options. We continue to advise family and clients to accumulate. We do not own a position in DoCoMo, KDDI or Softbank.