Sony Corp. (SNE) is on the Hedgeye Technology Best Ideas List as a LONG.
Bull / Bear:
- Bull: Image Sensors remain a good medium term opportunity (although we think December-Q may underwhelm). Taking better pictures (capture-edit-store) continues to be a major driver in smartphone product upgrades. Smartphone unit demand may be flatter in the future but the upgrade cycle still puts Sony in a #1 spot as the owner of a key technology.
- Bull: Pictures is still evolving from money-loser to a profit house and cash flow driver.
- Bull: Sony’s focus on cash flow is in its infancy.
- Bull: Ongoing enrichment of Sony’s gaming franchise thanks to a strong set of gaming software titles in the current environment. Falling hardware unit sales should be good for mix but questionable if management can drop hardware revenue without profit deterioration.
- Bull: TV + Mobile were terrible in F3Q but expected, and in that case are likely manageable into EPS as ‘good enough’.
- Bear: Semis recovery into Dec-Q shouldn’t be as ample as originally forecast by management.
- Bear: TV + Mobile are crappy even if the n-t results are less bad, they are still bad, and there are a lot of stranded costs in both categories, so management cannot just turn off the lights in either.
- Bear/Bull: Music is one of Sony’s better businesses, despite the secular risks of labels getting disintermediated.
- Bear: Fate/GO is about half of Sony Music’s growth rate in the last year, and about 25% of the profits of the group. Put another way, it makes Music a 5% grower (Jun-18) with a 12% LTM OPM versus 10% growth and 16% LTM OPM. FGO will probably not entirely go away but may diminish profits over time.
- Bull: EMI acquisition passing its largest regulatory burden with last Friday's EU approval.
- Bull: Any change to the long term conglomerate structure of the company which involves limiting exposure to weaker pieces and enhancing the capital focus on the stronger pieces can allow a wider set of investors to explore Sony as a Long. It can also free up cash flow that can drive a larger and larger dividend.
Please call or e-mail with any questions.
Ami Joseph
Managing Director
Yosef Vaitsblit
Analyst