Is Sony Stock A Buy?

Sony Group Corp (NYSE:SONY) is a multinational conglomerate headquartered in Tokyo, Japan. It’s a dominant force in consumer electronics, video games, music publishing, movie development, and more. It has a diverse portfolio that makes it the largest Japanese media company by revenue.

You may love its products, but is Sony stock a buy?

Despite intense competition, Sony stands at the top of the video game market. The company has generated about $82 billion in revenue during its 2020 fiscal year, an impressive figure that swooned by capturing more attention of gamers during lockdown periods.

However, Sony’s products tend toward the more expensive side of consumer electronics. Economic slowdowns lead to reduced discretionary consumer spending to which Sony is tethered. 

Sony 101

Sony Group is a global corporation founded in 1946 in Tokyo, Japan with Sony Corporation of America headquartered in San Diego, California. It develops, manufactures, sells, and distributes a variety of consumer and professional electronics and technologies.

The company’s image sensors, music business, film studio, and video game division are all industry leaders. Like Apple (AAPL), it’s known for sleek design of consumer products that often remain proprietary and produce strong revenue streams.

Of course, the most diehard Sony fans are its PlayStation customers.

> Check out some other video game stocks to watch.

Is PlayStation the Best-Selling Video Game Console?

During the 16-bit console wars of the 1980s, Nintendo (OTC:NTDOY) contracted Sony to develop a CD-ROM add-on for its Super Nintendo console. This was meant to compete with rival Sega CD, and the Nintendo PlayStation was announced at CES 1991. When the companies failed to reach an agreement, Sony adapted the development to release the project as a standalone in 1994.

The console was an instant hit, selling over 100 million copies. This puts the PS1 behind only the PS2 (157.68 million) and PS4 (115.4 million) as the top three highest-selling video game home consoles of all time.

However, this doesn’t count handheld systems, and the Nintendo DS (154.02 million) and Game Boy (118.69 million) would push the PS4 and PS1 down to four and five on the list. Neither Microsoft (NASDAQ:MSFT), Atari nor Sega ever breached 100 million units sold, and no other console manufacturers are even in the conversation.

Is Sony Stock A Buy?

Sony stock is up by over 50 percent during the past year. Some of that can be attributed to its continued dominance in the video game console wars. The PlayStation 5 sold nearly 10 million units in the first six months of its release, beating the 5.8 million units sold of Microsoft’s competing Xbox Series X/S.

PlayStation’s revenue of $3.8 billion in that time period also nearly doubled the $2.04 billion Microsoft generated from its console. While that may seem like a large number, it’s still relatively small compared to Sony’s overall revenue.

The company generated a total of $20 billion in the most recent quarter, which produced nearly $2 billion in earnings. It has around $9 billion of cash on hand, which gives it plenty of room to accomplish whatever it needs to moving forward through what could be a rocky economy over the next decade.

Sony Financial Outlook

Despite its successes in gaming, Sony’s financial future is largely driven by its music streaming and digital camera divisions. It raised its full-year operating profit outlook twice this year to land most recently on $8.99 billion.

The company assumed demand for devices and content would wane, but it is still going strong. However, it does face hurdles stemming from the global semiconductor shortage that could stymie its efforts to sell 14.8 million PS5 consoles during this fiscal year.

It recently bought AT&T’s (NYSE:T) animation branch Crunchyroll alongside other acquisitions aimed at bolstering its consumer content. In fact, the company expects to spend $18 billion on strategic investments for content expansion over the next three years.

When Home Runs Miss 

Not every Sony release is a home run – in fact, the company’s Xperia mobile devices are largely ignored. In fact, the division operated at a loss every quarter from 2017 through April 2021 when it finally made a profit.

Management’s attempts to start a streaming service have been subpar at best – PlayStation Vue failed to garner enough revenue to be worthwhile and was shuttered in 2020 after only 20 months in operation. That same year, it unloaded its stake in the Crackle video streaming service.

It’s also worth noting that Sony’s most recent generations of consoles have failed to live up to the sales of the PlayStation 2. There’s no telling when luck could change, and Sony finds itself in the position it put Nintendo as the sensei being surpassed by its student.

Is Sony Stock A Buy: The Bottom Line

Sony is one of the most successful technology companies in Japan and the world. It’s a global conglomerate with a variety of businesses involving consumer and enterprise electronics and content. It remains an industry leader in nearly every market in which it participates.

This gives analysts confidence that it could grow anywhere from 20 percent on the low end to 80 percent on the high end in a very short period.

Its current generation video game console is still leading the pack by a large margin, and the demand for Sony’s digital streaming, gaming, and music content hasn’t diminished with the economy reopening post-pandemic. That could translate to an appetizing investment for its fervent fanbase to consider.

When we examine the cash flows, Sony comes up trumps. A discounted cash flow forecast model projects a share price of $149.56 per share, representing an upside potential of a smidge under 20% at the time of research.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.