2024 has witnessed a whirlwind of companies executing forward stock splits. Noteworthy among them are Sony Group (NYSE: SONY) and MicroStrategy (NASDAQ: MSTR). Sony’s impending 5-for-1 stock split is slated for October 1, while MicroStrategy recently completed a 10-for-1 split in August.
Exploring Sony’s Evolution
While Sony commenced its journey as an electronics firm in 1946, today, its video games, film, and music divisions reign as the primary revenue generators. These segments accounted for around 60% of its revenue in the 2023 fiscal year ending March 31, 2024.
The conglomerate boasts a diverse array of successful entertainment businesses. Apart from its popular PlayStation console, outselling rival Microsoft’s Xbox, Sony solidified its position as the world’s largest music publisher following the 2018 acquisition of EMI. In a bold move, Sony acquired Alamo Drafthouse Cinema in June, becoming the first major studio to own a movie-theater chain in 75 years.
Sony’s strategic melding of technology acumen with its entertainment ventures forges a competitive edge. For instance, its gaming software birthed the Torchlight tool, aiding filmmakers in better planning movie shoots using virtual environments.
The forthcoming stock split may hint at an opportune moment to invest, but an impending partial spin-off of its financial services arm in 2025 poses a twist for prospective Sony shareholders. This spin-off will involve shareholders receiving stock in the new entity in exchange for Sony shares. Sony’s entertainment-centric strategy yields fruit, evident in its 12% revenue surge in the fiscal first quarter ended June 30 when excluding its financial services segment.
Evaluating MicroStrategy’s Trajectory
Established in 1989 as a software firm aiding clients in unlocking business insights from data, MicroStrategy pivoted in 2020 by channeling its operational cash into Bitcoin investments.
Accumulating 226,500 Bitcoins by July 31, MicroStrategy now mirrors its stock value closely to Bitcoin’s price due to its substantial cryptocurrency holdings.
MicroStrategy’s appeal as an investment now intertwines heavily with the valuation of its digital currency alongside its software operations. Management contends it offers a superior investment avenue to a spot Bitcoin ETF for those seeking cryptocurrency exposure, leveraging software profits to fund Bitcoin acquisitions.
From its initial 2020 foray into Bitcoin investment to July’s closure, MicroStrategy’s stock has surged over 1,200%. Yet, the firm isn’t merely relying on operational cash to fuel Bitcoin purchases; it has turned to debt, with Q2’s total liabilities touching $4.2 billion, including $3.8 billion in debt – an increase from the previous year’s $2.2 billion.
The sustainability of MicroStrategy’s Bitcoin-centric strategy remains up for debate, given its stagnant revenue growth. In Q2, the firm’s software arm witnessed a year-over-year sales dip to $111.4 million from $120.4 million in 2023, marking the third consecutive quarter of revenue decline.
Deciding Between Sony and MicroStrategy
Opting for a long-term investment over Bitcoin exposure places Sony as the more prudent choice between the two tech companies. Sony’s strategic pivot into the entertainment space, leveraging its electronics heritage to craft immersive consumer experiences, projects promising growth.
Conversely, while MicroStrategy’s Bitcoin focus propelled its stock, the mounting debt and diminishing revenue raise red flags for sustained investment.
One caveat for potential Sony investors is the impending financial services spin-off. Without full details on the spin-off, such as the exchange rate for Sony shares into the new company, a cautious approach is prudent. Given that a stock split does not alter the total market value of the investment, waiting for more spin-off disclosures before making a purchase decision is advisable.
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