Sony's Stock Looks Cheap as an Activist Pushes for Big Changes
There's no guarantee that Dan Loeb's Third Point LLC, which was just reported by Reuters to be building up a stake in Sony (SNE) , will get Sony to carry out the changes it's reportedly seeking. After all, Third Point previously built up a Sony stake in 2013 while calling for the Japanese conglomerate to spin off parts of its entertainment arm, only to unload the stake a year later without getting its way (albeit while realizing a 20% profit).
But in the event that Third Point, which is reportedly pushing Sony to "explore options" for its valuable movie studio and provide "clarity" on how its chip and insurance units fit with the rest of the company, is more successful this time, it could realize a lot of untapped shareholder value. And in the event that it doesn't, Sony's low valuation provides a margin of safety.
Even after accounting for the 8% Monday gain it has seen following Reuters' report, Sony trades for less than 12 times the EPS consensus for its March 2020 fiscal year. In addition, Sony, which currently sports a $59 billion market cap, has about $8 billion in net cash on its balance sheet.
Reuters notes that Third Point thinks Sony's movie studio arm (Sony Pictures Entertainment), which produced 318.2 billion yen ($2.85 billion) in revenue during the last nine months of 2018, has drawn buyout interest from the likes of Amazon.com (AMZN) and Netflix (NFLX) . Considering how much media M&A activity has been going on, it would hardly be shocking if a major streaming or old media player wanted to buy Sony Pictures Entertainment, which owns a pretty valuable back catalog.
There could also be a lot of interest in Sony's semiconductor unit, which includes a large image sensor business that counts Apple (AAPL) as a client, if it was put on the block. The chip industry has seen a huge amount of consolidation over the last few years, and at a time when the number of camera sensors inside the average phone and the average car both continue rising, it's not hard to imagine a chip company or three seeing a lot of value in Sony's sensor unit.Value could also be unlocked by selling or -- if that fails -- shuttering Sony's mobile phone division, which has long struggled in a highly competitive Android phone market and is expected on average by analysts to lose $450 million in the March 2020 fiscal year. Given all of Sony's potential options for boosting shareholder value, Third Point might only need to partly get its way for Sony's stock to keep rallying.
Pinterest's IPO Valuation Range Looks Pretty Reasonable
When a high-profile IPO doesn't go quite as planned and leaves some initial buyers feeling they got a raw deal, it's a safe bet that underwriters will respond by pricing the next big tech offering more conservatively.
That seems to be the case for Pinterest, which -- following a volatile debut for Lyft, which currently trades right around its $72 IPO price -- has set an IPO price range of $15 to $17. After accounting for outstanding stock options and restricted stock units (RSUs), this price range spells a valuation range of $10.1 billion to $11.5 billion, which is below the $12.3 billion valuation Pinterest received in a 2017 private funding round.
The midpoint of Pinterest's valuation range, it should be noted, is nearly 60% below Twitter's (TWTR) current $26.7 billion market cap. While one can argue that Twitter deserves a higher valuation given that it currently has a much larger revenue base -- relatively speaking, Pinterest is still in the early stages of monetizing its platform -- and about 20% more monthly active users (MAUs), this delta looks excessive.
Unlike Twitter, whose MAUs fell 3% annually in Q4, Pinterest is still seeing 20%-plus MAU growth. And the company looks well-positioned to continue seeing strong top-line growth in the coming years, given its search and e-commerce exposure.
Whether or not Pinterest is worth buying post-IPO depends on how much of an initial pop its stock gets. However, assuming that its IPO prices within the initial range that the company just set, it is fair to say that the company's IPO valuation looks pretty reasonable.
Tesla's Latest Cash Infusion Comes at a Convenient Time
According to the Financial Times, Fiat Chrysler (FCAU) will pay Tesla (TSLA) "hundreds of millions of euros" to have Tesla's cars counted in its vehicle fleet, so that Fiat can avoid paying massive fines for not being in compliance with new EU emissions rules. It's the first time that two completely different automakers selling in Europe have ever made such a move.
For Tesla, which earned about $380 million over the last two years from selling zero-emission vehicle (ZEV) credits, Fiat's cash infusion comes at a pretty convenient time. Elon Musk's company is just a few days removed from saying that its Q1 net income was "negatively impacted" by lower-than-expected deliveries, after having previously said it doesn't expect to be profitable during the quarter as it carried out price cuts, shifted to an online-only sales model and dealt with seasonality and the the halving of the U.S. electric vehicle tax credit.
Tesla added it had "sufficient cash on hand" at the end of Q1 -- it ended 2018 with $3.7 billion in cash and about $12 billion in debt -- but didn't say anything about whether this would hold in subsequent quarters.
While Tesla could likely pull off another capital raise if it needed, given that it has $48 billion in equity value and did report GAAP profits in Q3 and Q4, the deal terms for any new stock or debt offering probably wouldn't be favorable. If a few hundred million dollars in cash from Fiat can help Tesla avoid such a move, that's welcome news for a stock that has underperformed the S&P 500 by about 33 percentage points so far this year, with Tesla's shares down 18% this year and the S&P up 15%.
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