When three telecommunications firms announced plans in 1999 to merge, the financial markets immediately reached a conclusion: Toyota was no longer just a car company.
As the second-largest shareholder in the new company called KDDI, Toyota became a telecommunications company. In the year before the merger announcement, Toyota's stock price traded just below 4,000 yen. In the following 11 months, it traded as high as 5,750 yen.
Toyota's stock has fluctuated since then, due to a banking crisis in Japan that has little to do with Toyota itself. Over the long run, it seems investors have gotten the message: Toyota is not just a car company any more.
GM has seen a similar boost in its stock price because of its non-automotive business. At one point last year, the company's Hughes unit accounted for GM's entire stock market capitalization. In essence, the market valued the company's automotive business at zero. Under pressure from Wall Street, GM is considering the sale or spin-off of Hughes.
By contrast, Toyota has no intention of spinning off its telecommunications business. Toyota considers telecommunications to be essential, based on its vision for telematics.
When stock market analysts evaluate Toyota, increasingly they look beyond the auto business. Chris Redl, UBS Warburg's auto analyst in Tokyo, issued a report that rated Toyota's fair market value at 5,150 yen per share. He estimated Toyota's values as follows:
Auto business, valued at 4,165 yen.
Financial services business, 403 yen.
Gazoo.com, Toyota's Internet start-up, 93 yen.
Telecommunications, 222 yen.
Vehicle parts and other operations, 267 yen.
The core automotive business constitutes 80 percent of Toyota's value, Redl says. Others have been much less conservative. Noriyuki Matsushima of Nikko Salomon Smith Barney set a target price of a whopping 7,300 yen in March. 'We now believe Toyota should be viewed as a growth company, transforming itself from an automaker into a comprehensive autos-related corporation,' he said in a report.
Lately, Toyota's stock price has retreated when investors lost faith in telecommunications and Internet stocks. When the Nasdaq market plunged, Toyota fell with it. The company's stock took another hit in January when a group of banks announced plans to sell its stock. The banks needed to raise cash to offset their bad loans, part of their lingering hangover from Japan's Bubble Economy. As many banks planned sales of various companies' stocks, Tokyo's stock market flirted with 15-year lows.
Toyota's stock price fell to 3,370 yen, then bounced back when the company announced a $2.2 billion stock buy-back. Within two days, the stock rebounded close to 4,000 yen.
Despite these recent gyrations, it would be foolish to call Toyota's diversification a failure. Since the company announced its telecommunications venture in 1999, Toyota's stock price is down about 6 percent. By contrast, the Nikkei Index of Japanese stocks has plunged 17.5 percent.
It still helps to be more than just a car company.