Sony: Invest Now Or Miss Out?

Sony Group Corporation (SONY) is a multinational conglomerate company based in Minato City, Tokyo, Japan, with a market capitalization of $128.7 billion. The company has six main divisions: Gaming and Network Services (G&NS), Electronic Products and Solutions (EP&S), Financial Services, Image Sensing and Solutions (I&SS), Sony Pictures, and Sony Music.

SONY stock has been a great investment for investors, delivering a market-beating gain of 259% over the last five years. The company's gaming business has been a significant driver of this growth, with the PlayStation brand outselling its primary competitor, Microsoft's Xbox, in every console cycle. Sony's music segment has also contributed to its success, benefiting from rising demand from streaming music services.

As of June 2024, Sony had a market capitalization of $108.3 billion, a price-to-earnings ratio of 17.3, and a dividend yield of 0.6%. Analysts expect adjusted earnings to reach $5.262 per share for the current fiscal year.

While Sony's gaming and music segments are profitable growth drivers, they still only account for a minor portion of the company's overall business. Other segments, such as consumer electronics, imaging and sensing solutions, motion pictures, and financial services, comprise the majority of Sony's annual revenue and are more susceptible to competition and economic recessions.

Overall, Sony appears to be a solid investment choice with a diverse range of businesses and strong growth prospects in the gaming and music segments. However, investors should carefully consider their individual goals, risk tolerance, and allocation before deciding to buy, sell, or hold SONY stock.

Sony's market capitalization and price-earnings ratio

Sony Group Corporation (SONY) is a Japanese company that produces and sells electronic equipment, instruments, and devices for consumer, professional, and industrial markets worldwide. It also has businesses in consumer electronics, imaging and sensing solutions, motion pictures, and financial services.

As of May 20, 2024, Sony's market cap was $113.04 billion. Its market cap was calculated by multiplying its stock price per share of $83.59 by its total outstanding shares of 1,352,369,484.

Sony's price-earnings (PE) ratio is considered to be relatively low compared to the market average. As of May 10, 2024, Sony's PE ratio was 13. As of June 6, 2024, its PE ratio was 17.3. For comparison, the US market average PE ratio is 31.12.

Sony's PE ratio is considered a good value based on its earnings relative to its share price. Its forward PE ratio is 15.85, and its trailing PE ratio is 16.17.

The company's gaming and music segments

Sony's gaming and network services segment is the company's largest business segment, generating $28.5 billion in revenue in the 2023 fiscal year. This segment includes revenue from video games, network services related to games, music and video, and gaming hardware. Sony's gaming division appears to be highly reliant on the fourth quarter, which is traditionally a heavy consumption period. For example, between October and December 2022, the company made $8.5 billion in current prices with games, consoles, and game-related services, compared to $5 billion in the previous quarter.

Sony's gaming segment is an important contributor to the global video game industry, which had estimated revenues of between $180 billion and $220 billion in 2022. Sony's PlayStation consoles are among the best-selling game consoles worldwide. The PlayStation 2, for instance, sold 158.7 million units during its lifetime, making it the most popular video game console ever.

In terms of stock performance, Sony Group Corp (ADR) currently has a Growth Score of 90, which is considered Very Strong. This indicates that the company exhibits strong, consistent, and prolonged growth that is expected to continue in the future. Sony's Growth Score is based on its consistency of annual sales growth, five-year sales growth rankings adjusted for extreme levels, and consistency of positive annual cash flow from operations.

Sony's music segment is also a significant part of its business. In the 2023 fiscal year, this segment brought in $10.8 billion in revenue, making it the company's second-largest business segment. Sony is a leader in the music publishing industry, with a market share of almost 25% in 2022.

Sony Music Entertainment (SME), commonly known as Sony Music, is an American multinational music company owned by Sony Entertainment. It is the second-largest of the "Big Three" record companies, behind Universal Music Group and followed by Warner Music Group. SME's music publishing division, Sony Music Publishing, is the largest music publisher in the world.

Overall, Sony's gaming and music segments are key drivers of the company's revenue and contribute significantly to their respective industries.

The impact of the COVID-19 pandemic on Sony's business

The COVID-19 pandemic had a significant impact on Sony's business operations and financial results. In its 2020 report, Sony detailed the effects of the pandemic, highlighting a financial impact of ¥68.2 billion (US$650 million) on its operating income for the fiscal year ending March 31, 2020.

Game & Network Services Segment:

While Sony estimated no material impact on this business for the fiscal year 2020, it closely monitored potential delays in production schedules for game software, especially at its first-party and partner studios in Europe and the US. The business was also affected by delays in new music releases, interruptions in the supply chain for physical music media, and a decrease in music licensing due to reduced advertising and delays in motion picture and TV production. Additionally, Sony had to temporarily shut down all film and television production, leading to changes in theatrical release dates.

Electronics Products & Solutions Segment:

The shutdown of Sony's manufacturing plants in Malaysia and the unstable supply of resources from Asian suppliers impacted the production of goods in this segment. Sales of Sony's products were also affected by lockdowns and retailer closures worldwide.

Imaging & Sensing Solutions Segment:

There was no significant impact on the production of CMOS image sensors, and the supply chains in China gradually recovered. However, there was a risk of sales being impacted by a potential slowdown in the smartphone market, as Sony's primary customers in this segment are smartphone manufacturers.

Financial Services Segment:

There was no material impact on this segment initially, but Sony noted the possibility of financial market fluctuations influencing the segment's financial results, as had occurred in the past.

To mitigate the effects of the pandemic, Sony implemented work-from-home policies and temporarily closed some offices worldwide. The company also established the "Sony Global Relief Fund for COVID-19" with a commitment of US$100 million to support those affected by the virus globally.

Sony's strengths and weaknesses

Sony's Strengths:

• Sony is a well-known, premium consumer electronics brand with a reputation for creating cutting-edge technology and innovative digital concepts.
• Sony has a history of innovation, having played a leading role in the development of DVDs, DVD players, video cameras, personal music devices, and PlayStation consoles.
• Sony has a diverse range of consumer products and services, from mobile devices to home appliances and entertainment.
• Sony has a loyal customer base, with its PlayStation loyalty program ensuring that gamers remain committed to the brand.
• Sony has a highly valuable brand, ranking #39 on the Top Regarded Companies list and #47 on the World's Most Valuable Brands list in 2020.
• Sony has made significant contributions to the consumer electronics sector, including the Blu-Ray disc, VCR, compact disc, Walkman, and Crystal LED TV.
• Sony has a strong presence in the gaming and entertainment markets, with popular profitable products such as the PlayStation video game consoles and Sony Music.
• Sony has a large and devoted customer base and has been able to consistently deliver high-quality goods with significant R&D spending.

Sony's Weaknesses:

• Sony's products are often more expensive than those of its competitors, making them unaffordable for many consumers.
• Sony has a weak presence in the smartphone market, with its Xperia line of mobile phones capturing a small market share.
• Sony's marketing efforts and promotional activities are lacklustre when compared to competitors such as Apple and Xbox.
• Sony takes a long time to release new products, forming an unfavourable perception and reducing purchase rates.
• Sony's lack of dominant mobile devices is a major weakness, with its smartphones and tablets performing poorly in the market relative to competitors such as Apple and Samsung.
• Sony's servers, databases, and networks are vulnerable to potential cyber-attacks, creating concerns for the business and its customers regarding data security.

The company's growth prospects

Sony's growth prospects look promising, with the company expecting an 8% increase in total revenue for the full year as its strengths offset its weaknesses. The company's gaming and network services (G&NS) unit, which includes the PlayStation business, grew during the pandemic as more people stayed at home and played video games. While its growth has decelerated as pandemic tailwinds fade and chip shortages throttle PS5 console shipments, Sony still expects a 9% sales rise for the full year as it resolves supply chain issues.

The electronic products and solutions (EP&S) unit, which includes TVs, cameras, mobile devices, and consumer electronics, benefited from stronger sales of TVs and cameras, as well as an easy comparison to the initial pandemic impact a year ago. However, this segment faces stiff competition and is burdened by Sony's struggling smartphone business. Sony predicts a 3% revenue rise for the full year.

The financial services division, which provides life insurance and investment services, faces tougher comparisons to last year's strong performance and is expected to see a 16% revenue decline for the full year.

The image sensing and solutions (I&SS) business, which manufactures image sensors for smartphones and cameras, experienced a recovery in the first quarter as COVID-19 disruptions ended. However, Sony expects a 3% revenue dip for the full year due to weaker sales of image sensors for smartphones.

Sony Pictures, the TV and film production division, saw a severe slowdown during the pandemic and is expected to see a 2% revenue dip for the full year as it deals with delays for TV shows and movies.

Sony Music, which includes the record label, streaming music, anime, and mobile gaming units, grew throughout the pandemic as more people turned to streaming music, anime, and mobile games. It is expected to see a 5% revenue rise this year.

Overall, Sony's strengths in gaming, music, and financial services are expected to offset weaknesses in other segments, leading to an 8% total revenue increase for the full year. Analysts anticipate revenue and net income growth of 7% and 24%, respectively, for the next fiscal year, indicating that Sony's growth prospects remain positive.

Frequently asked questions