There is never a good time to retire. But this may be an especially inauspicious season for Kazuo Hirai, the CEO who saved Sony (NYSE:SNE), to be heading into the sunset.
Kaz Hirai replaced Howard Stringer in 2012, at a time when the company was at its lowest. The stock has since seen a nearly five-fold price increase. Kenichiro Yoshida, named CEO last year, was Hirai’s first lieutenant as chief financial officer.
It would make a great video game plot: Kaz flying in from the games division to rescue a company that had been floundering since the death of founder Akio Morita, armed only with his “One Sony” plan. But Yoshida-san faces his own problems in a new era, starting with a second effort to split it off from entertainment by Third Point LLC and Daniel Loeb.
Hirai’s Sony found synergy between gaming and the entertainment division. What will Yoshida’s sequel look like?
Yoshida’s Opportunity
At its April 9 price of about $46.50 per share, Sony is still $15 below the high it achieved in October, before the tech wreck. That makes it quite the bargain. Sony’s shares trade at just 12 times its estimated fiscal year 2020 earnings, which began this month. To further make establish my case for buying SNE stock, it has a $59 billion market cap and roughly $8 billion in cash and current assets.
Third Point wants to unload the film unit to Amazon (NASDAQ:AMZN) or Netflix (NASDAQ:NFLX), shut down a phone division Hirai was never able to turn around, and maybe sell its sensor unit to Apple (NASDAQ:AAPL). The result would leave Sony with the video game unit, the music division and a steaming pile of cash, with which Yoshida could build a new company.
That new company would be based in gaming, where Yoshida faces a host of challenges. The rise of cloud gaming, where rival Microsoft (NASDAQ:MSFT) has a better play as a Cloud Czar than Sony has as the console market leader, is one such challenge. A replacement for the PlayStation 4 console is another. The rise of online regulation, starting in Europe, is a third.
Yoshida has already made some moves, ending the sale of PlayStation 4 download codes through retailers like GameStop (NASDAQ:GME), and selling a majority stake in its Crackle video streaming service. The company has also patented prescription glasses that adapt to virtual reality — an indication that its researchers can still deliver innovation.
Rising Costs, Bigger Rivals
But like its superhero character Spider-Man — partially licensed to Walt Disney (NYSE:DIS) in 2015 — Sony faces a host of giant rivals threatening to squash Yoshida’s ambitions. Spider-Man movies have grossed over $5.2 billion over the years with the most recent effort, the animated Spider-Man: Into the Spider-Verse, already headed for a sequel.
What Loeb wants from Yoshida is his own ride into the sunset, through a bidding war that might involve Universal Studios owner Comcast (NASDAQ:CMCSA) or WarnerMedia owner AT&T (NYSE:T).
But does Yoshida want that?
As CFO, Yoshida made the hard decisions of Hirai’s era: selling the Vaio computer unit, spinning off the company’s iconic TV business. He’s even once said there are “no sacred cows” at the company.
The Bottom Line
Loeb believes he is swooping back into Sony with good timing.
Yoshida has valuable assets and, unlike previous Sony leaders, has shown a willingness to play the assets within his hand. But he has also called Sony a “creative entertainment company,” where it was previously seen as a consumer electronics company. He could transform the company in much the same way Steve Jobs focused Apple Inc and put it on the path to iPhone.
Yoshida-san doesn’t sound like a man who wants to sell, even to Apple, a company that could still buy Sony for straight-up cash.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AAPL, MSFT and AMZN.
