Sony Corp. (SNE, Financial) rewarded shareholders with healthy returns in 2016 as the stock was up almost 14%. Moreover, the stock has displayed strong signs of upward momentum this year as well, rising nearly 38% year to date.
2017 has been a great year for gaming-related stocks so far as most of the stocks have done well. U.S.-based video game publishers Activision Blizzard (ATVI, Financial) and Electronic Arts (EA, Financial) are up 68% and 45%.
In the past, Sony has operated in electronics, financial services, gaming and entertainment segments, but the company’s gaming segment particularly has been growing at a rapid pace. Moreover, the company’s latest quarter results point out that it is set to boom in 2017 as well as the forthcoming years mainly due to its diversification.
In the most recent quarter, the company finally managed to report positive operating income of $843 million and a net income of $250 million. The company’s Game & Network Services sales surged 6.3% year over year to $14.73 billion. That surge was primarily due to an increase in PlayStation 4 (PS4) software sales, comprising sales via a network and an increase in PS4 hardware sales.
Moreover, the company’s growing PS4 segment is getting bigger with new products based on its virtual reality (VR) offering and PlayStation Vue TV offering. According to a report from research firm SuperData, Sony sold 375,000 PlayStation VR headsets during the first quarter.
Most significantly, the company recently confirmed that it had sold more than 1 million PlayStation VR headsets since its launch. Although the sales of PlayStation VR headsets have slowed, they are still significantly greater than those of its rival headsets HTC Vive and Oculus Rift.
Moving onward, the worldwide video game industry is projected to grow at a compound annual growth rate (CAGR) of nearly 5% from $71.3 billion in 2015 to $90.1 billion in 2020. Therefore, Sony has a better chance to establish a stronger foothold there and carry on dominating the hardware division of a console market.
On the other hand, Sony has teamed up with Disney (DIS, Financial) and is on its way to releasing a new film titled “Spider-Man: Homecoming” on July 7. Among all the superhero cartoon characters, Spider-Man is the most popular character, and all the previous Spider-Man movies have performed much better than expectations.
Accordingly, it appears to be a win-win deal for both companies as the upcoming Spider-Man film will likely become a blockbuster, and Disney will get the rights to use the Spider-Man character in its Marvel universe.
A few years ago, Sony’s mobile phone segment was one of the significant growth drivers, but the circumstances have completely changed. The revenue generated from its mobile communications segment accounts for just 6.7% of its overall revenue and is continually falling with each passing year.
Recently, Sony launched its new high-end smartphone, Xperia ZX Premium, which features a 4K HDR display and is powered by Qualcomm’s (QCOM, Financial) latest Snapdragon 835 chip. Although the new smartphone will not help Sony gain a considerable portion of the high-end smartphone market, it indicates that Sony is still in the game.
Summing up
Sony had a great run in 2016, and it looks like the company will continue inching upward in the coming years as well. The company’s Game & Network Services segment will continue to be a significant growth driver in the approaching quarters. The company comprises a huge PS4 user base, and its control of the content and the hardware will unlock new growth opportunities in the long run.
The stock currently offers a dividend yield of almost 0.5%, which is not striking, but something is better than nothing. Although the stock trades at a high price-earnings (P/E) ratio of 73.20, it still has legs to run. As a result, shareholders should continue their long-term journey with Sony for more returns in the future.
Disclosure: No position in the stocks mentioned in this article.
