Foolish Lessons From Sprint and Sony
Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Both have been hyped recently, with turnarounds promised, and both have risen in value in response. But in both cases reality has a way of biting back.
The lesson in both cases is the same. You should buy evidence, not promises. Stories are what you tell your kids to get them to sleep. They're no way to make money in the stock market.
Sprint: The New #3?
The story of Sprint at least has some plausibility. Japanese entrepreneur Masayoshi Son has an audacious plan to make the company a third force in the mobile market, doing to Verizon (VZ) and AT&T (T) what he did in Japan to KDD and NTT, grabbing market share with low prices and the latest technology.
Since Sprint began talking to Son in July about what would become a plan to buy 70% of the company and merge it with Clearwire, the stock has nearly doubled in value.
A little more than a year ago you could buy a share of Sprint for $2.17. Now it's at $5.70. Back in February I said it was “circling the drain,” and had Son not come along I think it still will be. It's obvious now management was furiously looking for merger partners and that they lacked the resources to crack the AT&T-Verizon duopoly without help.
The huge loss revealed this week demonstrates that, whatever Son's big plans for the future, today's problems are real. Sprint bulls expect to get rich on someone else's money, and they've already taken some fat gains from it. But at this point you probably need to see Son execute on something before throwing more money at him.
Sony: Playing Hirai's Game
Sony has great assets in the former CBS Records and Columbia Pictures. But it remains what it always was, a consumer electronics company, and in an era where TVs are made like computer chips, and don't break as tubes did, the maker of the Trinitron and inventor of the Walkman has been getting dragged down.
Under new CEO Kazuo Hirai, this was supposed to change. The company has been pointing to a “major announcement” on February 20, widely expected to be a PlayStation 4, but the degree to which this matters may be muted by its 8th straight quarterly loss, announced this week, which shows Hirai still has yet to come to grips with the underlying problem.
Beyond the PlayStation, which is #3 in its market behind the Nintendo Wii and Microsoft Xbox, Sony has failed to marry the era of the computer to its consumer electronics. And even the console market is falling, as consumers increasingly spend time with mobile games and social games rather than TV-based games. The PlayStation 4, thus, looks like just another step down the wrong road for Sony, which piles features into its boxes for its own purposes, rather than creating value for consumers.
In both cases the lessons for investors is the same. It is foolish to buy hype, and Foolish to wait for results. Don't buy promises. Fools buy what's delivered. You may be late to some parties, but you won't wind up with a hangover.
DanaFBlankenhorn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!