Ratchet, Clank and TVs: investing in Sony

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Sony (NYSE: SONY) - the legendary Japanese conglomerate. The company makes its equipment, video games, films. But she also has problems.: debt and Microsoft.

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What do they earn

Sony is a diversified Japanese conglomerate. According to company report, Sony's revenue is divided into the following segments.

Games and online services — 28,94%. Everything, related to PlayStation. Segment operating margin — 12,41% from its proceeds. The segment's revenue is divided as follows:

  1. Digital Software and Additional Content - 51%. Games and add-ons.
  2. Network Services - 17%. Services in the field of games, music and video.
  3. Equipment - 19%. Consoles and devices for them.
  4. The mysterious "other" 7%. Hardware and software for set-top boxes.
  5. Sales of CDs 6%.

Music — 10,15%. Everything, what is connected with the music business of the conglomerate. Segment operating margin — 16,97% from its proceeds. The segment's revenue is divided as follows:

  1. Recorded music: streaming - 33% and other - 23% - CD sales, income from concerts and music broadcasts, actual music production.
  2. Music release - 19%. Sony payments for the use of its music by consumers and companies.
  3. Visual media and platform − 25%. Cartoons, games based on them, various services in the field of music and video.

Cinema — 12,23%. The company's income from its film business, like the Spiderman movies. Segment operating margin — 6,74% from its proceeds. By type of income, segment revenue is divided as follows::

  1. Films - 47%. This is the production and distribution of films, filmed in the company's studios.
  2. TV - 30%. The same, as above, only on TV.
  3. Media - 23%. These are TV channels, company-owned.

Products and solutions in the field of electronics — 23,84%. The name speaks for itself. Segment operating margin — 4,43% from its proceeds. The segment's revenue is divided as follows:

  1. TV - 33%. These are TVs, various services and subsystems for them.
  2. Audio and video - 18%.
  3. Stationary video cameras - 19%. This also includes the production of screens., including for medical equipment.
  4. Mobile communications - 18%. Phones, tablets, as well as accessories and applications for them, Internet connection services.
  5. The mysterious "other" 12%.
  17 June

Image and sensors — 11,92%. Semiconductor production. Segment operating margin — 23,91% from its proceeds.

Financial services — 15,7% proceeds. Segment operating margin — 9,97% from its proceeds. By type of revenue, the situation in the segment is divided as follows::

  1. Insurance - 90%.
  2. Banking services - 10%.

Everything else — 2,92%. Non-core operations for modern Sony: batteries, voice recorders, data storage and disc manufacturing business outside of Japan.

Segment operating margin — 7,57% from its proceeds.

Revenue by country and region:

  1. Japan - 32,91%.
  2. USA - 23,92%.
  3. Countries of Europe - 20,18%.
  4. China - 8,47%.
  5. Other Asian countries - 9,53%.
  6. Other countries — 4,99%.

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Arguments in favor of the company

Japanese policeman. Company from Japan, which gives a number of bonuses. First: it can be pumped up by American investors to spite China. We have already discussed this plot in investment news., so we will not repeat ourselves here.. I will add, that Sony is at the forefront of high-tech manufacturing in Asia, making it an attractive target for politically charged Western investors.

Second: some economic data from Japan give cause for optimism, because consumption is growing. Considering, that this is the first most important market for Sony, maybe, it signals that, that the company is doing well.

Third: conditions for investor activism are gradually improving in Japan. And Sony seems like a good target for an activist to attack.: it is a conglomerate of very different businesses. Think, that with due effort, a large fund will be able to spin Sony's management into spinning off several divisions of the company into separate issuers, whose shares will grow more vigorously than the quotes of a single Sony.

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Logistics. 66% the company carries out its own production. And from production at the company's factories 61% belongs to Japan, and also 24% — to other countries of the Asia-Pacific region. In conditions, when China, where Sony has only 13% production, pursues the most stringent quarantine policy, this somewhat reduces the likelihood of, that the outbreak of coronavirus in China will greatly spoil Sony's reporting.

Inexpensive. I can not tell, that the company is now cheap, But she doesn't look overrated either.: P / S — 1,46, P / E — 16,58. This can attract investors to the stock, who are looking for "very expensive stocks with growth prospects".

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Production at Sony, share of total

2020 2021
Sony factories 73% 66%
Third Party Manufacturers 27% 34%

Production at Sony factories by region

2020 2021
Japan 63% 61%
China 12% 13%
Other Asia-Pacific countries 24% 24%
Americas and Europe 1% 1%

What can get in the way

Japan. All the positives, associated with the registration of the company, can easily turn negative. Japanese courts don't like activist investors, so the potential campaign is in danger of failing. And the weakening of the Japanese economy and rising production costs could negatively affect Sony's financials..

debts. The sum of all debts of the company is 22.558 trillion yen, of which 8.275 trillion yen the company needs to repay within a year. The debt is slightly larger than the entire capitalization of the company at 14.89 trillion yen, and she doesn't have much money.: 1,822 trillion on accounts and 1.82 trillion debts of counterparties.

The company also has assets of its financial department - more than 18 trillion yen. If you count them, then more or less all debts the company can close. But it's not on 100% liquid funds.

Large debt may scare away some investors from the company. However, here you need to take into account the importance of the conglomerate for the Japanese economy, which means, Sony management has political connections, that will allow him to get the right loan on decent terms.

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Microsoft. Sony gaming business, very marginal and important for her, losing to Microsoft. The latter is buying up promising studios and publishing houses in batches and is confidently moving towards a monopoly.. Very likely, that new studios will create cool exclusives for the Microsoft console, which will force the players to give preference to her. Sony has more modest financial resources. She recently bought a Bungie, and not a fact yet, that this purchase will justify itself, because Bungie may not repeat the success of Halo. Meanwhile, Microsoft is already breathing down the back of the company's head.. If I were Sony shareholders, I would be worried about this..

turn not today. Earlier this year, the company announced that, what is going to make their own electric cars. Investors greeted the news with enthusiasm, but I wouldn't be so optimistic. The electric car business is extremely low-margin at best., and often just unprofitable - and I'm afraid, no matter how this project sucked all the juice out of the company.

  Everyone hi

One hope: Sony will seize the moment for the IPO of this division and will be able to capitalize on this stupidity. This is a very likely option.: Recently, electric car startup Rivian had a multi-billion dollar IPO with almost no revenue and a lot of losses., received as much as 11.9 billion dollars. Maybe, the same trick will come from Sony - in this case, it will be possible to turn the minus into a plus or, in the worst case, minimize losses.

Рэтчет, Кланк и телевизоры: инвестируем в Sony

Resume

In May 2021 I took these shares for 99,37 $ with the expectation of selling them for 115 $ during the next 14 Months. It turned out even better in the end., than i expected, and faster: in January 2022 I sold shares for 128 $. Now they've fallen and reached the mark 102,53 $.

Basically, stocks are not very expensive now, and if you are not afraid of possible problems with the growth of costs in the company, you might as well try to invest in it..

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