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Sony Invests $400M in Bilibili, Seeks Further Collaboration

Zacks Equity Research
·3 min read

On Apr 10, Sony Corporation SNE announced that its wholly-owned subsidiary — Sony Corporation of America (“SCA”) — has inked an agreement with Bilibili Inc. BILI, a leading online entertainment services provider for the young generation in China. SCA has subscribed for 4.98% of the total outstanding shares of Bilibili through the purchase of newly-issued Class Z shares for a consideration of about $400 million.

Bilibili started 10 year ago as an animation site, but has stretched to other categories including e-sports, user-generated music videos and documentaries. The service, which has gathered more than 130 million monthly active users, has attracted several big investors over the years. The list includes China-based giants Alibaba Group Holding Limited BABA and Tencent Holdings Limited TCEHY.

Bilibili stated that it targets China’s Gen Z, the majority of its users (almost 80%) that were born between 1990 and 2009. The company is achieving growth through its core business areas including mobile games, live streaming and distribution of video content. Sony believes that China is a key region in the entertainment business and the investment is in line with its long-term growth strategy. With this investment, the Tokyo, Japan-based company further aligns with the world’s frontrunner in technology.

Sony and Bilibili have also entered into a Business Collaboration Agreement. Per the terms, the firms agreed to pursue collaboration opportunities in the entertainment space in China, including animation and mobile game apps. That said, this investment is not expected to have a material impact on Sony’s consolidated financial results for the fiscal ending Mar 31, 2021.

Execution of measures to realign its business portfolio, like withdrawing from the PC business and selling the battery business, is aiding Sony. It is concentrating on the premium segment of the branded products market to maximize growth. The company has achieved sales growth in the Imaging & Sensing Solutions and Music segments. It enhanced profitability in the Electronics Products & Solutions segments and secured a stable profit contribution from the Financial Services segment.

However, escalating cost of goods sold continues to be a major challenge. Sony suffers from the negative impact of foreign currency movement as it has a strong international presence with a majority of revenues coming from emerging markets. High restructuring costs and intense price competition in television, gaming platform and smartphone business are other headwinds.

Sony’s shares have rallied 30.2% compared with 18.7% growth of the industry in the past year.

The stock is currently trading with a forward P/E of 16X. The Zacks Consensus Estimate for its current-fiscal earnings has been revised 0.7% upward in the past 30 days to $4.41.

Sony currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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