Would you short a company that has created one of the most intense and sophisticated gaming experiences on the market?
What if the company overestimated a key market, only to watch competitors siphon its audience away? What if the stock has significantly lagged the S&P over the past five years? And what if the company is so clueless about the negative perceptions its brand has accrued that it responded to a January phone call from fellow Fool Alyce Lomax by saying "What negative PR?"
I'd short it -- not just for any one of these reasons, but for all of them.
Sony's (NYSE:SNE) recent PlayStation 3 gaming console was supposed to save the company, but it's proved to be a sore disappointment. In my opinion, Sony overestimated the market for the PS3. While its graphic capabilities are much more intense than those of its rivals, the $599 price point is too expensive for casual gamers. Instead, Nintendo's (OTC BB: NTDOY.PK) Wii has captured a significant portion of the casual gamer / non-gamer demographic, and what Nintendo hasn't grabbed, Microsoft (NASDAQ:MSFT) and its Xbox 360 have. Now that Sony is ditching its less expensive 20GB model, the gap between casual and hardcore gamers, and the prices each are willing to pay, will widen even more.
Even without the console-related disappointments, I'm still concerned about Sony's other problems. Despite a variety of PR missteps, the company just doesn't seem to be learning its lesson. "Exploding batteries," sneaky rootkit installations, fake blog advertisements, and more recently, DRM problems have prompted bloggers to unleash a torrent of vitriol in the company's direction.
While Sony is a huge conglomerate with a highly diversified revenue base, the sheer audacity of its PR department in deliberately committing some of these missteps (the fake blog, for example) causes me to seriously question its internal quality controls. Brand reputation aside, does the company not realize it's alienating the same tech-savvy base of consumers it's trying to woo?
But even disregarding my personal feelings, what do the financial results prove? As of its most recent quarter, Sony's still struggling. Single-digit sales growth, mostly driven by its movies' better performance at the box office, combined with lower earnings and greater losses, largely from trying to sell the very same PS3 Sony's depending on. That doesn't paint a very sound picture to me.
Sony's revenue has grown only 5% over the past five years, while its shares have only risen a paltry 2.8% over the same time period. Why you would invest in a company this clueless and uncertain, when you could invest in the index and make more, is beyond me.
That's actually what prompted me to go to the Motley Fool CAPS database and take action. I voted that Sony would underperform the index over the next several months, but I could have chosen any time horizon, and I'd still have said the same thing. Plenty of people in the community seem to agree with me; in CAPS, Sony earns a measly one-star rating. (If you want to see what I and others have to say about this stock, just click here to take a look at CAPS, completely free).
I wouldn't invest in Sony -- but I'd short it if I could, at least in CAPS. Join me on the service, and let me know what you think.
Microsoft is an Inside Value pick, while Nintendo is a Stock Advisor selection. There's a reason why Sony hasn't been recommended in any of our newsletters!
Fool sector head Shruti Basavaraj owns shares of Microsoft but does not own shares in Sony (no surprise there). She also wished Sanjaya from American Idol were a stock, so she could have shorted him, too. The Fool's disclosure policy sings a much better tune.
