October 29, 2019 / 3:25 AM / 17 days ago

Breakingviews - Super Mario turbo-charges case for Sony breakup

Nintendo Creative Fellow Shigeru Miyamoto stands next to the Super Mario character during an Apple media event in San Francisco, California, U.S. September 7, 2016. REUTERS/Beck Diefenbach

HONG KONG (Reuters Breakingviews) - Super Mario is running circles around a Japanese rival. The iconic plumber’s mobile racing hit has helped power up shares of Nintendo by almost 30% this year. Its richer valuation also intensifies the pressure on Sony, which is facing calls to reduce its sprawl. Nintendo has been on an impressive winning streak. Its recently released “Mario Kart Tour” racked up more than 90 million downloads in its first week, industry tracker Sensor Tower estimates. Moreover, a new and smaller version of the popular Switch console, as well as a tie-up with Chinese titan Tencent to enter the world’s largest gaming market, should give a boost to Nintendo’s quarterly results due Thursday. Operating profit in the three months to September is expected to rocket up 65% from a year earlier, to 51 billion yen, or $470 million, according to the average of analyst estimates gathered by Refinitiv. That puts $75 billion Sony in danger of falling further behind its nimbler and more focused rival. Nintendo trades at 18 times anticipated earnings for the next 12 months. Sony, by comparison fetches only about 14 times, weighed down by its lower-valued TV, smartphone and camera businesses, as well as a conglomerate discount. Sony boss Kenichiro Yoshida has been reluctant to break up the company. Last month, he shot down a proposal from Dan Loeb’s pushy hedge fund, Third Point, to spin off the chips business and offload its financial unit. Sony called semiconductors a “crucial growth driver” and opted to maintain the structural status quo. In a letter to its investors last week, Third Point said it intends to persist at the Japanese company, “guided by our view that Sony remains one of the most undervalued large capitalization stocks around the world”. The case for a standalone Sony entertainment business, led by its successful PlayStation consoles, is growing. A combined video-games, music and movies enterprise alone could be worth $70 billion, Nomura analysts reckon, based on 2021 forecast numbers. Add in Sony’s other businesses and stakes, and the company currently trades at more than a 25% discount to the estimated sum of its parts. The idea only gets additional fuel from a turbo-charged Nintendo.

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