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SoftBank shares surge more than 17 percent after CEO Son announces 'enormous' stock buyback

Key Points
  • Shares of SoftBank skyrocketed more than 17 percent on Thursday.
  • SoftBank Group said it would repurchase 112 million shares worth 600 billion yen (approx $5.46 billion) in the next 11 months, or about 10.3 percent of its total outstanding shares, excluding treasury stock.
  • One investor described the share buyback as "enormous," but questioned the long-term impact of the announcement.
Masayoshi Son, chairman and chief executive officer of SoftBank Group at the SoftBank World 2018 event in Tokyo, Japan.
Kiyoshi Ota | Bloomberg | Getty Images

SoftBank's stock skyrocketed on Thursday after its CEO Masayoshi Son announced a share buyback following the company's release of strong quarterly earnings.

The Japanese conglomerate's shares surged 17.73 percent on the day.

SoftBank Group said it would repurchase 112 million shares worth 600 billion yen (approx $5.46 billion) in the next 11 months, or about 10.3 percent of its total outstanding shares, excluding treasury stock. That came as the company announced a more than 50 percent surge in its net income for the first three quarters of the fiscal year.

Funded by proceeds from the bumper IPO of its domestic telco, Son said the buyback — the company's largest ever, according to Reuters — was driven by what he sees as a chronic undervaluation of SoftBank's shares.

One investor described the share buyback as "enormous."

"It's definitely going to ... propel the stock, at least in the coming months," Andrew Jackson, head of Japanese equities at SooChow CSSD Capital Markets (Asia), told CNBC's "Squawk Box" on Thursday.

"If you go back to 2016, you look at the last large buyback they did, the 500 billion buyback then, I mean, the stock essentially doubled in the 12 months after that," Jackson said. "Whether this is unlocking value in the future ... is hard to say."

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"There's a part of me that thinks maybe (Son's) trying to make up for the ... mispricing in SoftBank Corp, " he added, saying the pricing of the domestic telecommunications unit's IPO was "way too high."

The buyback comes after SoftBank Group raised 2.35 trillion yen in December by listing about a third of the shares in SoftBank Corp, which on Tuesday reported a 24 percent jump in quarterly operating profit.

Beyond the announced share buyback, Dan Baker, an analyst at Morningstar, pointed to other possible reasons for Thursday's strong gains.

One of those was that SoftBank earnings were presented in a different manner to highlight "sum-of-the-parts valuations rather than discussing results of individual businesses," Baker told CNBC in an email.

Baker also cited the additional details surrounding the performance of SoftBank's Vision Fund and the use of hedging to lock in the company's gains in chipmaker Nvidia as potential catalysts for Thursday's stock move upward.

SoftBank announced on Wednesday that it had dumped its entire stake, worth more than $3 billion, in Nvidia in January.

— Reuters contributed to this report.

Clarification: This article has been updated to clarify that SoftBank shares surged on the Thursday trading day in Japan.