Friday, February 4, 2022

An International Equity holding: Sony Group Corporation Sponsored ADP (SONY, $112.56): “Play in Your Own World” By: Aidan McGuire, AIM Student at Marquette University


Sony Group Corporation Sponsored ADP (SONY, $112.56): “Play in Your Own World”

By: Aidan McGuire, AIM Student at Marquette University

Disclosure: The AIM International Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


  • Sony Group Corporation Sponsored ADP (NYSE: SONY) operates as one of the world’s largest technology companies, being among the class of leading innovators for electronics, gaming systems, as well as the entertainment industry.
  • Sony operates in three main business segments: Game & Network Services (29% of FY21 Revenue), Electronics Products & Solutions (21%), and Financial Services (18%).
  • Sony Interactive Entertainment announced a $3.6 billion acquisition of the video game developer Bungie, most notably known for their production of the video games Destiny and Halo. For a Game & Network Services segment that was up 11.3% in FY21, this is sure setting up for another year of growth in 2022.
  • The co-production between Sony and Marvel Studios of Spider-Man: No Way Home broke box office records, being the first film to exceed $1 billion in the pandemic time period. Sony, based on an estimated $1.75 billion box office, is expected to make a profit of $610 million, making this film the most profitable in the company’s history.

Key points:

Earlier this month at the Consumer Electronics Show, Sony announced its plans in building an electric car company with the unveiling of their prototype SUV, the Vision-S, as well as the launch of a new operating subsidiary called, “Sony Mobility Inc.” The technologically advanced vehicle will use Sony sensors to allow for self-driving capabilities, creating a richer, more interactive entertainment experience within the interior of the machine. Many vehicles in this sector of the car industry have Level 2 hands-free capabilities, where the driver is alert in the car while the vehicle is aware of its surrounding and centers itself on limited access roads. It is believed that after 2023, most of these kinds of vehicles will need to incorporate Level 3 hands-free driving capabilities, where the driver will not have to be at attention behind the wheel, but will need to react with an advanced notice.

As for the interior features, passengers will be given the ability to connect to their PlayStation console from home to enjoy that same, innovative experience on the roads, ideal for adventures such as road trips. In addition, this car comes with the ability to personalize the cabin, as well as on the go 5G connectivity, truly embracing the move towards the future. Along with the Vision-S announcement, Sony revealed an expected expanded relationship with Amazon, saying that subscription and software services are projected to bring in $4.5 billion in annual revenue by 2026, with a rise to $23 billion forecasted by the year 2030.

Since Sony was added the portfolio in October 2020, the release of the PlayStation 5 has taken the world by storm since its introduction in November of 2020. Following up the act of the PlayStation 4, which sold the 4th most units ever in terms of game consoles at 116.6 million, would be a tough ask, but in under the year and a half of its existence, they have made quite the splash in the industry. Though it has fallen into a slower pace of sales when to compared to that of the PlayStation 4, the PlayStation 5 was the quickest Sony-made console to reach 10 million units sold. In FY21 Q2, 3.3 million units were shipped, growing the lifetime number to 13.4 millions units sold. Additionally, there were 47.2 million people subscribed to PlayStation Plus, as well as 104 million active monthly users. This console was projected to be the most successful gaming console release of all time, only to be held back by supply deficits and the lingering affects that COVID-19 still has on the world.

What has the stock done lately?

Sony hit a near 52-week high when it was selling at $133.56 a share on January 5th. Following the announcement of Activision being acquired by Microsoft on January 19th for $69 billion, most popular for their production of video games such as Call of Duty, Sekiro, Tony Hawk Pro Skater, and Guitar Hero, Sony’s stock price fell nearly 19% to $112.50. For FY22, analysts are forecasting a 5% increase in Sony’s games and network services segment to $25.6 billion, rounding out to just under 30% of the total company’s revenue. The main fear for Sony is Microsoft will publish titles strictly to their Xbox platform, much to the likes of the Halo franchise. Having a game such as Call of Duty be one of Sony’s most popular games would be a detriment to sales if the rights are taken away, thus putting their share price at risk of future decrease.

Past Year Performance:

2021 was a roller coaster year for Sony, as their share price never seemed to find a consistent pattern. Selling at 118.03 in the beginning of February was as high as they were going to get until late September, leaving a positive charge going into FY21 Q3 for the company. In that period from FY21 Q1 to Q2, Sony saw sales rise 12.55%, causing the gradual growth in share price over the summer months leading into fall. In large part, Sony Pictures Entertainment and Amazon Falls announcement of opening the first Columbia Picture Theme and Waterpark in Thailand help start the upward charge, giving the public a state-of-the-art park featuring all-time movies such as Ghostbusters, Jumanji, Men in Black, and Hotel Transylvania.

Source: FactSet

My Takeaway

Since this stock was pitched in October of 2020 at a price of $77.47, with an expected upside of 35.14% to ultimately reach $104.69, it is safe to say this company has outperformed the expectations had when first entered into the portfolio. At a price of $112.56 today, Sony has continued to revolutionize the way they conduct business, making a splash in the industry each and every year with an assortment of products through an array of business segments. Those supply chain shortages and COVID-19 related issues have set the company back a bit, but a continued effort to stay ahead of their competition has shown to be profitable, thus leading me to suggest this stock not be removed from the International Equity Fund.

Source: FactSet