Better stock-split: Sony vs. MicroStrategy

There has been no shortage of companies executing a stock split due in 2024. Among them is the electronics giant The Sony Group (SONY 1.43%) and software company MicroStrategy (MSTR 2.61%). Sony’s 5-for-1 stock split is scheduled to take place on October 1, while MicroStrategy completed its 10-for-1 split in August.

Both companies fall into the tech stock camp, but Sony and MicroStrategy have moved away from their roots in electronics and data analytics, respectively. Today, Sony focuses on its entertainment business, while MicroStrategy describes itself as “the largest corporate holder of Bitcoin in the world.”

These factors contribute to why each company is an interesting stock split investment. These factors also complicate the evaluation of which to invest in, and some investigation is required to uncover the pros and cons of each company. Here’s a breakdown of these veteran tech companies to help you decide which is a better investment.

Sony Unboxing

Although Sony began in 1946 as an electronics company, its video game, movie and music divisions are now the dominant source of sales. These segments accounted for about 60% of its revenue in fiscal 2023, which ended March 31, 2024.

The conglomerate owns a number of powerful entertainment businesses. In addition to Sony’s PlayStation video game console, with sales exceeding those of its rival MicrosoftXbox, the company’s 2018 acquisition of EMI made it the world’s largest music publisher. In June, the company acquired Alamo Drafthouse Cinema, becoming the first major studio to own a movie theater chain in 75 years.

Sony’s strategy is to merge its technological know-how with its entertainment business to create competitive differentiation. For example, its gaming software was used to build the Torchlight tool, which allows filmmakers to better plan shoots using virtual environments.

Its impending stock split will drive down the price of each individual stock, so this may seem like the time to buy — but there’s a catch to investing in Sony. The company plans a partial spin-off of its financial services division in 2025.

As part of this, shareholders will receive shares in the new company in exchange for Sony shares. (This article provides a deeper analysis of the spin-off to help you evaluate whether you want to own stock in the new company.)

As for Sony’s focus on entertainment, the strategy is working. In its fiscal first quarter ended June 30, the conglomerate’s revenue rose 12 percent year-on-year to ¥2.6 trillion, excluding its financial services segment, as opposed to just 2 percent growth with all divisions included .

MicroStrategy Evaluation

MicroStrategy began in 1989 as a software company helping customers gain business insights from their data. In 2020, the company began investing cash generated from its operations in Bitcoin.

Since then, MicroStrategy has amassed 226,500 Bitcoins as of July 31st. It holds such a substantial amount of the cryptocurrency, its stock now closely mirrors the price of Bitcoin.

Data by YCharts.

At this point, investing in MicroStrategy has as much to do with the value of its digital currency as it does with its software operations. In fact, the company’s management believes it is a better investment choice than a Bitcoin exchange-traded fund (ETF) for investors seeking exposure to the cryptocurrency, as it can use cash from its software business to fund Bitcoin purchases.

The management team has a good argument. Since the start of its 2020 investment in Bitcoin through the end of this July, MicroStrategy’s stock is up more than 1,200%.

However, MicroStrategy isn’t just using its cash from operations to fund its Bitcoin purchases. It also takes on debt as another source of funding. Total Q2 debt of $4.2 billion included $3.8 billion in debt, an increase from the prior year debt of $2.2 billion.

Whether MicroStrategy can sustain this long-term Bitcoin buying strategy is debatable as its revenue growth has stagnated. In Q2, the company’s software business experienced a year-over-year sales decline to $111.4 million from $120.4 million in 2023. This is the third consecutive quarter of year-over-year revenue declines year.

Choosing between Sony and MicroStrategy

If you’re not looking for a way to invest in Bitcoin, Sony is the best long-term investment choice between these two tech companies. It is carving a niche in the entertainment industry by leveraging its expertise in electronics to deliver consumer experiences.

Meanwhile, MicroStrategy’s focus on Bitcoin has boosted its stock, but the company’s rising debt and declining revenue mean investing in its stock long-term is risky.

The only caveat with a Sony investment is evaluating whether you want to own shares in its financial services spin-off. Some details of the spin-off are not yet known, such as how many Sony shares will be exchanged for shares in the new company.

Since a stock split doesn’t change the total market value of your investment, don’t rush to buy Sony. It is prudent to wait until more details about the spin-off are revealed before deciding whether or not to buy shares.