Could Sony Hack Turn Into Buying Opportunity?

| About: Sony Corporation (SNE)
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Summary

Sony now sells at a substantial discount to assets and sales.

Sony's movie "The Interview" will make money thanks to North Korea.

Sony can turn this into a big win for shareholders, at present values, without much trouble.

The "great hack" against Sony (NYSE:SNE) Pictures, widely rumored to have originated with a North Korean dictator angered by a comedy in which comedian Seth Rogan tries to assassinate him, may be the best break the company has gotten in some time, and produce the first buying opportunity investors have seen for the stock in many years.

In conventional terms, this stock is a dog, and has been for a long, long time. It hasn't made a profit since the Bush Administration, and the shares are down 26% over five years. The company is still trying to shed money-losing divisions, and as soon as it sheds one it finds more.

CEO Kazuo Hirai now finds himself with only two assets worth owning - the videogame division he helped build himself and the Sony Pictures unit, which made "The Interview." The yen's collapse means his financial results, in dollar terms, have been reduced substantially.

But 7,767,266 million yen in annual revenue still comes to $64.727 billion, even at an exchange rate of 120 yen to the dollar. The company's stock has a valuation of $25.29 billion, meanwhile, so you're paying just 40 cents for each dollar of sales.

For a company involved in any area of entertainment or technology that's an absurdly low price. CBS (NYSE:CBS) shareholders are paying almost $2 in equity for each $1 in valuation. Viacom (NYSE:VIA) (NASDAQ:VIAB) shareholders are paying more than that. Disney (NYSE:DIS) shareholders are paying more like $3 in equity for each $1 in sales.

These are numbers similar to those that Meg Whitman saw when she became CEO of Hewlett-Packard (NYSE:HPQ). Simple financial engineering allowed the value of that stock to nearly triple since late 2012, but it still sells at a discount to the company's sales, while other tech companies sell at up to five times sales. With today's low valuation, Hirai could simply break the company into its constituent parts to provide a huge win for shareholders.

More important, the hack has turned Sony at a stroke from an object of scorn to one of great sympathy. Sony's computer operations are now drawing loving attention from some of the best law enforcement and military brains in the business. The North Korean "hack attack" is nothing less than an act of war. It is going to draw a response, and Sony isn't going to pay for all of it.

I hadn't planned on seeing "The Interview." I don't always find Seth Rogan funny, and I usually find running-mate James Franco to be snide. (Can you imagine Franco once got a Best Actor Oscar nomination?) But this is the kind of publicity you can't buy. Imagine, buying a ticket to a movie becomes an act of political defiance against a dictator. The $44 million budget is going to come back many-fold, no matter how lame its jokes. (Although I hear it's got tigers! I like tigers.)

So let's sum up. You've got a hit movie on your hands, you've got the sympathy of the world and the loving attention of both the military and law enforcement. Plus you've got a company selling at a substantial discount to its sales, literally at one-fifth the company's asset value. (15,166,121.00 yen in assets comes to over $126 billion at a rate of 120 yen to the dollar, by my calculations.)

What have you got to lose? Unless you really think U.S. law enforcement is going to let a major American company like Sony Pictures be cowed by a bunch of North Korean-inspired hackers.

Disclosure: The author is long DIS.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.