Morningstar | While solid results and promotion of CFO Yoshida encourage the market, we view shares as overvalued.
As both technologies and consumer preferences change quickly, it is generally difficult for consumer electronic companies to build up an economic moat that generates sustainable excess returns on capital. The replacement cycle of digital appliances is usually three to six years, but as most products are commoditized, it is hard for manufacturers to build up an ecosystem that prevents customers from moving to different manufacturers.In fact, Sony’s profitability on electronics has been unstable over the years, while Pictures, Music, and financial services have been generating solid results. Exposed to intense competition with Asian manufacturers, Sony’s TV business generated operating losses for nine consecutive years, and recorded asset impairments in fiscal 2012. The company was also forced to revise its growth strategy in smartphones, and to write off intangible assets in fiscal 2015 as a result. We praise the company’s recent efforts to restructure its electronics business and regain profitability, but we are still not confident that the firm as a whole qualifies for an economic moat.Meanwhile, we like Sony’s new challenges in its PlayStation business. In addition to the strong shipment momentum of the PlayStation 4, Sony is aggressively introducing various services, such as PS Plus (monthly subscription service), PS Vue (Internet television service), PS Now (cloud gaming service), and in particular, PlayStation VR (virtual reality service), which launched in October 2016. We believe these new services may deliver additional users to the PlayStation ecosystem. We are also interested in Sony’s strategy to introduce PlayStation 4 Pro, an enhanced version of the PS4. We believe this will contribute to lengthening the cycle of the current PlayStation generation, and constituting an ecosystem that will help maintain existing users on the next-generation platform.Sony is engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets such as network services, game hardware and software, televisions, audio and video recorders and players, still and video cameras, mobile phones, and semiconductors. Co. is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as the production and distribution of animation titles. Co. is also engaged in the production, acquisition and distribution of motion pictures and television.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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