February 8, 2019 / 5:03 AM / 4 months ago

Breakingviews - Sony’s record share splurge misses the big picture

Sony Corp's new President and Chief Executive Officer Kenichiro Yoshida attends a news conference on their business plan at the company's headquarters in Tokyo, Japan May 22, 2018. REUTERS/Toru Hanai

HONG KONG (Reuters Breakingviews) - Sony’s blockbuster share splurge misses the big picture. On Friday, Japan’s $55-billion electronics giant said it would repurchase 100 billion yen ($911 million) worth of stock. Days after disappointing earnings, that’s a sign of confidence from newish boss Kenichiro Yoshida. To boost longer-term returns, though, he needs to convince investors a much-needed deeper overhaul of the video games-to-movies conglomerate is also underway.

The buyback will be Sony’s largest ever. Just last week, the company announced a worse-than-expected fall in operating profit from its PlayStation console division, Sony’s cash cow business. That helped wipe some $9 billion off the company’s market value in the days that followed. The latest move is already cushioning that blow: by late morning in Tokyo on Friday, Sony’s shares were up by as much as 5 percent.

That should boost Yoshida’s standing with shareholders. Since taking over last April, the chief executive has presided over a negative 8 percent return as of Feb. 7, largely in line with Tokyo’s benchmark Topix index.

Moreover, the repurchase plan shows that Sony’s balance sheet is stronger than it has been in recent years. Net cash, excluding the group’s financial services business, stood at 445 billion yen, around $4 billion, as of December, up from 177 billion yen a year earlier. Yet the stock trades at roughly 11 times forward earnings - well below its own two-year average and video-games rival Nintendo’s 14 times, Refinitiv data shows.

An unruly conglomerate sprawl is to blame. Besides video games, music, and movies, Sony also houses a capital-intensive semiconductors unit as well as a loss-making smartphones businesses. Unlocking value will require bolder steps like spinning off chip-making or exiting handsets. A share bonanza, though welcome, will only go so far.

Breakingviews

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