Sony Surges After Announcing Another Record Stock Buyback

(Bloomberg) -- Sony Corp. jumped to its highest since December after Chief Executive Officer Kenichiro Yoshida unveiled another record share buyback just months after completing a similar program.

The Tokyo-based company soared as much as 8.8% on Friday after announcing it will purchase as much as 4.8% of its outstanding shares, spending up to 200 billion yen ($1.8 billion). The repurchase period begins Friday and lasts till March 31. That comes after it spent 100 billion yen from February to buy 1.5% of stock, then the largest buyback in history in terms of value.

Yoshida’s move underscores a commitment to supporting the stock price as Sony became the latest Japanese company to announce a buyback of at least $1 billion. Executives in the country are becoming increasingly responsive to shareholder activism and purchasing stock is the CEO’s preferred tool to thwart pressure from investors in a deteriorating economic and market environment. His company is grappling with plateauing smartphone demand and fewer blockbuster titles for the aging PlayStation 4. Escalating tensions between the U.S. and China now also cloud the global economic outlook.

“This is a message that investors shouldn’t sell Sony just because the rest of the market is falling,” said Makoto Kikuchi, founder of Myojo Asset Management Co.

With the back-to-back stock repurchases, Yoshida is beginning to leave his mark as CEO on the storied electronics giant. The finance guru was elevated to the position about a year ago and so far has earned a reputation more for cost cuts and buybacks than long-term strategic decisions. Thursday’s announcement would mean spending about 14% of Sony’s total cash reserves purchasing its own stock.

Analysts at Mizuho Financial Group Inc. and SMBC Securities Inc. upgraded their price targets for the shares after the news.

“The second buyback in quick succession suggests that the management finds the current stock price attractive,” wrote Jefferies Group senior analyst Atul Goyal wrote in a report. “We expect a less bearish/more bullish Sony management on IR day (21 May).”

The buyback will likely dominate conversations on May 21, when executives will update investors about their strategy. Shareholders will be looking for an explanation after the company last month abruptly withdrew some of its medium-term profit targets, saying the operating environment was changing drastically.

Operating profit will be mostly flat this fiscal year after adjusting for one-time items, the company announced last month. Prior to Thursday’s announcement, shares had gained 3.1% since the results -- compared with a 5% drop for the broader Japanese market -- as analysts were surprised that Yoshida’s outlook was less conservative than expected.

Not everyone was convinced the record buybacks will lead to more gains. Amir Anvarzadeh, a market strategist at Asymmetric Advisors Pte in Singapore, began on Friday recommending that investor sell Sony shares, saying the firm’s profit forecast won’t hold up given more poor phone demand and growing competition from Google in video games.

Sony on Thursday separately announced a new partnership with bitter rival Microsoft Corp. in cloud gaming, underscoring the challenges the PlayStation faces in scaling its cloud infrastructure.

“The partnership with Microsoft with the cloud on gaming was a surprising move,” Anvarzadeh said. “It shows that both firms are taking Google’s Stadia venture very seriously.”

©2019 Bloomberg L.P.