Sony Corp. (SNE, Financial) ended 2016 in the green as the stock was up approximately 14%. Moreover, the stock is off to a great start this year as it has surged more than 13% year to date.
Sony reported third-quarter results in February. For the quarter, the company’s sales and operating revenue declined 7% year over year mainly due to the impact of foreign exchange rates. However, the company’s sales were almost flat on a constant currency basis, due to the considerable surge in revenue generated from Game & Network Services as well as the Semiconductor segment.
In 2016, the revenue generated from Game & Network Services was $13.73 billion, up from $11.57 billion in the prior year. Moreover, the company reports that it sold more than 50 million PlayStation 4 units, considerably greater than Nintendo’s (NTDOY, Financial) Wii and Microsoft’s (MSFT, Financial) Xbox One combined, making it the fastest-selling game console.
Moving ahead, the company introduced its PlayStation virtual reality (VR) headset last year in an effort to gain huge benefits from the VR market which is projected to reach $33.90 billion by 2022, representing a compound annual growth rate (CAGR) of nearly 58% between 2016 and 2022.
Facebook (FB, Financial) and HTC (TPE:2498, Financial) also introduced their VR devices, Oculus Rift and HTC Vive, in 2016. Sony’s VR headset is performing much better than the other two devices as the company has sold 915,000 headsets since October. Moreover, PlayStation VR has successfully turned itself into the world’s best VR headset.
Sony’s PS VR ($399) is comparatively cheaper than the Oculus Rift ($499) and HTC Vive ($799). Furthermore, it doesn’t require a high-end PC (minimum $1,000) to function like that in the case of Oculus Rift and HTC Vive. These are the foremost reasons behind the unbelievable success of PS VR.
The company has launched more than 100 virtual reality titles for PlayStation 4 and anticipates launching more than 100 new titles this year. Moreover, the continuously growing VR trend will inspire gamers to upgrade to PlayStation Pro as it offers a more ultimate experience.
Although Sony comprises a diversified portfolio of products, its Game & Network Services segment looks well positioned to grow at a comparatively stronger rate in the years ahead.
Conclusion
Sony’s Game & Network Services segment performed amazingly well in 2016 and will continue performing well in the long-run. Sony made a great move by launching a comparatively cheaper VR headset, as it permitted the company to compete effectively against its rivals.
Virtual reality era is just getting started and Sony appears to be in a great position to gain massive benefits from this growing trend in the coming years. Investors should continue holding the stock for additional returns in the future.
Disclosure: I don't hold a position in the stocks mentioned in this article.
Start a free seven-day trial of Premium Membership to GuruFocus.
