Japanese telecoms and Internet group Softbank posted a worse-than-expected 13 percent fall in quarterly operating profit on Thursday, as its marketing costs ballooned on efforts to win new subscribers.
Softbank, Japan's No.3 mobile carrier after NTT DoCoMo and KDDI Corp, also announced it would seek shareholder approval for a potential preferred share issue to attract investors who want higher dividends but no voting rights.
The company does not release earnings outlooks, but analysts predict its mobile business will help push up profits this year.
"We can't expect the same pace of growth in its subscriber base as in 2007, but we believe Softbank will keep on picking up those who leave DoCoMo this year and next," said Credit Suisse analyst Hitoshi Hayakawa.
Softbank has been luring users away from rivals with an aggressive price-cutting strategy since it bought Vodafone Group's Japan mobile unit in 2006.
It expanded its customer base by nearly one-fifth last business year.
That forced DoCoMo, which has about half the market, and KDDI to offer discounts as well, fuelling a price war in a mature market where 85 percent of Japan's population own a mobile phone.
The total number of mobile users rose about 6 percent to 107 million in 2007/08.
Softbank's group operating profit totalled 64.1 billion yen ($614.6 million) in January-March, against a 73.8 billion yen profit a year earlier.
Three analysts polled by Reuters Estimates on average forecast an 89.7 billion yen profit for the quarter.
Thirteen analysts forecast on average a profit of 355.9 billion yen for the full year to next March, up 10 percent from the company's 324.3 billion yen operating profit in 2007/08.
Softbank and rivals have been locking in subscribers by offering discounts that are valid only if users do not switch to another carrier for roughly two years.
A focal point for Softbank this business year will come in the autumn, when some of its customers reach the end of an earlier two-year discount plan, Lehman Brothers analyst Tetsuro Tsusaka said.
Softbank's earnings were buoyed by Yahoo Japan, in which it owns 41 percent.
Yahoo Japan, which is also one-third owned by Yahoo, last month reported a 14 percent rise in profit for the latest quarter and forecast a 6-14 percent increase in the three months to June.
Softbank also owns a 3.9 percent stake in Yahoo.
Analysts had said that if Microsoft's bid for the U.S. Web search engine had been successful it could have allowed Yahoo Japan to use Microsoft's scale to lower marketing costs and tap Microsoft's resources to make searches faster.
But even though the merger talks failed, analysts expect further profit gain at Yahoo Japan to support Softbank's bottom line.
Softbank has been expanding into China's fast-growing market, where global giants like Google , Yahoo and Microsoft also operate.
Company sources have said Softbank plans to invest up to 30 billion yen to raise its stake in Chinese social networking site operator Oak Pacific Interactive to 40 percent from 14 percent.
Softbank's expansion into social networking follows its investment in the Alibaba group, which gave it a presence in business-to-business e-commerce, a shopping site, and a search engine in China.
To fund possible acquisitions in the future or other business opportunities, Softbank said it may issue preferred shares if they were associated with the Tokyo Stock Exchange's TOPIX index. It will seek approval for that at its shareholders meeting in June.
Shares in Softbank slid 22 percent in the three months to March, while the benchmark Nikkei average lost 18 percent. Prior to the announcement, Softbank shares closed down 3.3 percent at 2,040 yen. The Nikkei average ended down 1.1 percent.