Hail Hirai!
Sony Corp (ADR) (NYSE:SNE) CEO Kazuo Hirai, who took the top job in 2012, is finally starting to see some results from his multiyear turnaround plan.
While the company does not have its next quarterly earnings announcement until Nov. 1, investors are already seeing the turnaround in their accounts. Just for calendar year 2016, the stock is up 36%. This is happening despite the fact that the consensus on upcoming earnings is for a loss of 7 cents per share.
Hirai has been fighting against his company’s own corporate culture, which made him keep ailing consumer electronics units well past their sell-by date, and the slow pace at which it responded to changes in the market.
Hirai sold some slow-moving lines and let go of 10,000 people, but has been unwilling to jettison its TV and mobile phone lines, which continue to drag on results.
Hirai’s Plan for SNE Stock Is Synergy
Hirai came from the company’s video game unit, its one bright spot, representing nearly four-fifths of the company’s profits. While rival Microsoft Corporation (NASDAQ:MSFT) works to tie its competing Xbox to the Windows operating system, Hirai’s strategy is to tie his Playstation to other consumer products and services.
So instead of launching a streaming service, Sony launched Playstation Vue, a streaming service with gaming. The company has extended the hardware line with a virtual reality headset.
Hirai chose not to sell the company’s TV or phone lines, but the company is getting faster to market. Sony’s latest TV is getting strong reviews, as is its latest pocket camera and its latest phone is said to have impressive technology, a positive as Android makers look to take market share from Samsung (OTCMKTS:SSNLF).
Entertainment Grow or Sell?
The bigger problem may be malaise in the company’s Sony Pictures and television unit, which was number one in studio market share in 2012 with a 16.1% share and is now down to number five with a 9.1% share.
The studio had a winner last month with The Magnificent Seven and its big October release, Inferno, is hoping to earn $42 million this weekend, based on the past record of sequels.
For 2017, SNE stock is moving ahead with a movie about emojis, a live-action version of the Chinese tale of Mulan (dueling with another live-action version made by Walt Disney Co (NYSE:DIS), which created the animated film Mulan) and a marketing partnership with China’s Wanda Films, aimed at cracking that market.
When will the company start mining its video game library for movie hits? Stay tuned.
When Will Profits Flow Steadily?
Analysts are buying the future profit story. Of 24 analysts now following SNE stock, 19 have it rated “buy,” with the consensus being it will deliver as much as $2 per share during its next fiscal year. With the stock currently selling at $33, that would make it a bargain.
The problem is that you’re betting on a very fickle market — entertainment — for those earnings. Hirai has a handle on most of the company, but until he can deliver some hit movies, I have to be skeptical about the company’s future.
Sony denies it has any intention of selling its studio to Wanda but if it did, I might be a buyer of the stock.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and DIS.
