Why Sony Stocks Soared Today

Shares of the Japanese conglomerate Sony (SONY 3.51%) gave investors some very good news on Tuesday by announcing that it has resolved all disputes related to its merger with Zee Entertainment Enterprises. Sony’s Indian arm had planned to merge with Zee in a $10 billion deal, but that was scrapped earlier this year, leading to litigation between the two companies.

Sony and Zee find common ground

Partly due to the rapidly changing Indian media landscape, Sony and Zee have decided to settle their differences and move forward without any obligation to the other. Zee’s shares rose 12% in reaction, although they are still down from before the merger was scrapped.

India is a huge market for media companies, but it has been difficult for outsiders to enter or find partners who can contribute to profitable growth. And pandemic-era ratings haven’t lasted for media companies facing uncertain box office and slowing growth in streaming.

A clear strategy in entertainment

As almost every other media company tries to launch a streaming service, burning money in the process, Sony is the only company selling content to the highest bidder. This has been a successful strategy and has kept Sony’s profits consistent since before the pandemic.

But the diverse nature of the conglomerate’s business is now working against Sony and the stock trades for just 17 times earnings, with analysts expecting a slight decline in revenue over the next two years. As much as the Zee litigation overload might be good news for Sony today, it doesn’t change the company’s growth challenge in media, which still lacks the growth investors want to see today.