Sony Group: Moat Rating Upgraded to Wide; Building Stronger Business Portfolio for Long-Term Growth

We upgrade Sony Group’s moat rating to Wide from None, based on the intangible assets and switching costs. Over the past decade, Sony has shifted to an asset-light business model, focusing on content acquisition, and developing recurring revenue businesses that enable long-term monetization from customers. As a result, while Sony’s return on invested capital track record is poor, we believe the company’s current business portfolio is much stronger than before and can generate ROIC above the weighted average cost of capital over the long term. Due to the moat rating upgrade, we raise our fair value estimate for Sony to JPY 18,000 per share from JPY 16,000 and to USD 112 per US ADR from USD 103. We believe its shares are currently undervalued.