After arguably losing the last round of the ongoing console
appears better positioned in the latest battle with its impressive
Playstation 4. This new system is possibly the most technologically
impressive one going out in this round, while its lower price point
Xbox One suggests that Sony has learned its lessons from last time.
Initial reviews of the system have been pretty solid too, while the
system's lineup is also respectable. This is leading some to
believe that SNE will do much better in this generation of
consoles, and that perhaps the stock is even a buy if this happens.
Why It Doesn't Matter
Yet while the gaming division seems likely to get a boost, it is
questionable if it will really impact the nearly $20 billion
company and their bottom line in a meaningful way. After all, SNE
has a number of divisions stretching across a variety of segments,
so a solid performance in gaming could be muted by continued
weakness in other areas.
The gaming division of Sony, for the
most recent six month period
ending on September 30
, produced an operating loss of eight million dollars, on nearly
$1.588 billion in sales and operating revenues. A number of other
segments also produced losses for the time frame, including imaging
products, mobile, and home entertainment and sound.
There were only two major divisions that produced anything of value
in terms of operating income for the time period, music ($99
million in operating income) and financial services ($400 million
in operating income). So really, Sony is more of a financial-and
music-driven company than anything else at this time.
And if investors look
back to the PS3 launch back in 2006
, losses were even more significant in the game division. While
sales were at an impressive $3.721 billion, the operating loss was
approaching half a billion dollars for the company's 2006 third
In fact, in this PS3 launch quarter, gaming was actually the only
major segment to produce a loss for the company, further
underscoring how little a successful launch will directly help the
company's bottom line. Although, you may be able to argue that more
PS4 sales would help Sony sell other products in its lineup, the
track record in the gaming division alone isn't great, and
investors who believe that this latest launch will turn it around
will probably be mistaken.
If that wasn't enough, U.S. investors also have to combat the
threat of continued 'Abenomics' which reduces the value of the yen
against the dollar. In fact, for the most recent quarter, the yen
plunged against the dollar by 20% (year-over-year).
While this may be able to help with exports, it does hurt when
translating yen profits into dollars. In this situation, even if
SNE can turn it around it may have trouble living up to past
figures as a deprecating yen could be a tough hurdle to overcome
unless it can really drive sales.
Still, this slumping yen-and the strength of the financial division
in this environment-has undoubtedly helped SNE this year. The stock
has surged YTD, though trouble is certainly brewing now as the
initial boost from this policy is starting to wear off.
Current year and next year estimates have plunged for the company
as of late, with the consensus estimate falling for 46 cents a
share for the current year 90 days ago to just 36 cents a share
today. Meanwhile, we have seen a similar slide over the past month
in terms of next year's estimates too, as these have slumped form
$1/share to $0.82/share now.
We actually have a Zacks Rank #4 (Sell) on SNE at time of writing,
so we are looking for its recent run of outperformance to end, and
for the stock to fall back to Earth. And since
Sony expects to sell the PS4 at a loss
, strong sales of the hardware might actually push these earnings
estimates even lower in the coming weeks, suggesting that if
anything, investors should actually avoid Sony stock for the time
You might like the PS4, and even believe that it is a game-changing
device. However, its ability to drastically change the picture at
Sony is questionable, especially considering the myriad of other
business segments that Sony is engaged in at this time (and
considering how profitable its financial segment is).
So a better play might be to take a look at one of the game
producers instead for exposure to a new bullish trend in the
videogame industry, as a new round of consoles may spark more
sales. In particular,
Activision Blizzard (
which currently has a Zacks Rank #2 (Buy) could be an interesting
choice, and one that seems likely to benefit off of a new console
war, even if MSFT and SNE see limited impact from their new systems
on their respective bottom lines.
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