Sony
Group Corporation Sponsored ADP (SONY, $112.56): “Play in Your Own World”
By: Aidan
McGuire, AIM Student at Marquette University
Summary:
- 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.
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.
