Sony Stock Price Hit by Hacking Problems But Worst May Be to Come

The Interview Still 6 - H 2014
Ed Araquel

The Interview Still 6 - H 2014

Analysts are divided over long-term impact on Sony's valuation

Amid the relentless avalanche of bad news engulfing Sony Pictures Entertainment in the U.S. since it was first hacked on Nov. 24, the stock price of its Japanese parent company has been dropping more so than the broader markets.

However, it is hard to estimate how much of that drop was driven by hack-related news flow and general business and economic news, analysts say. Still, there's a risk the conglomerate's stock may slide further as the revelations continue and investors weigh the potential damage to Sony's bottom line.

Shares of Sony have fallen 6.6 percent on the New York Stock Exchange since the hack was made public, more than twice what the S&P 500 has fallen in the same time frame, but it's tough to find a Wall Street analyst who would attribute the fall to the computer hack.

In fact, predictions of a potential $100 million loss due to the hack, along with speculation about long-term damage to SPE's business and credibility following the release of personal information, salaries and some damning email exchanges, don't appear to be unduly troubling from a stock perspective. That is, as long as the victims are confined to Sony employees and not its customers.

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"We are not at this time expecting a material financial impact — no consumer data was released and, on balance, Sony has very little consumer financial information — particularly in the pictures' division where the attack occurred," said Daniel Ernst of Hudson Square Research.

Indeed, Dana Blankenhorn, writing for Seeking Alpha, says the hack could lead to a buying opportunity, especially considering the free publicity that The Interview has received since the alleged hackers have demanded that Sony not release the film on Christmas Day as planned. The comedy is about a couple of American journalists trying to kill North Korea dictator Kim Jong Un. and that country has praised the hack-attack against Sony.

"I hadn't planned on seeing the Interview. I don't always find Seth Rogen funny, and I usually find running-mate James Franco to be snide," wrote Blankenhorn. "But this is the kind of publicity you can't buy. Imagine, buying a ticket to a movie becomes an act of political defiance against a dictator."

Sony stock took a prolonged hit in April 2011 when the details of around 100 million users of the PlayStation Network were stolen by hackers, though some analysts see that incident as more financially damaging than the current problems.

"The issue creates bad headlines but, unlike the previous instance, it does not warrant any substantial additional costs such as ID theft protection extended to all subscribers, so the impact should be over relatively quickly," a Sony analyst in Tokyo told The Hollywood Reporter, calling the company's current hacking woes a "temporary negative."

Read more Sony Hackers Release Eighth Batch of Leaked Files

Another analyst predicted that Sony's share price may fall further as the hacking-related problems continue, the Japanese media focus more on the fallout, and senior management in Tokyo finally comments publicly on the matter.

"The domestic media was slow to respond to the PlayStation Network hack, and when Sony CEO Kaz Hirai, then vp, finally commented, it was basically, 'Everything is fine.' It was from that point that the share price fell, even though the financial damage at around 10 billion yen ($84 million) was tiny," said the analyst.

The Japanese media has given the hacking affair surprisingly little coverage, and one Tokyo fund manager contacted by THR claimed to be completely unaware of the matter.

While some of the content of the hacked emails may be cringe-worthy, and a $100 million hit would be painful, it won't devastate SPE's operations, let alone those of Sony Corp., which has larger financial problems to deal with. SPE logged operating income of $504 million on revenue of $8.3 billion in the last financial year. That had been forecast to rise to $535 million in the current year to March 2015 — though that was before the hacking began.

Sony is forecasting a loss of $2.15 billion (?230 billion) for the year to March, in part due to big restructuring costs at its mobile phone division. The entertainment to electronics conglomerate has also canceled its dividend payments for shareholders for the first time since it went public in 1958.