Should you Play Sony Ahead of PS5 Release?

Evaluating the impact of the PS5 release on SNE stock

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Sony Corp (NYSE:SNE) is a well-known conglomerate based out of Tokyo. The company is widely known for its electronic and entertainment products, including the extremely popular PlayStation console. The newest addition to the PlayStation series is currently scheduled be released in November, provoking a reenergized interest in SNE from investors and fans alike. 

First, let's take a look at how the company is performing as compared to analyst expectations. Sony has beat the Street's earning expectations in three out of their last four earnings reports. The company missed expectations by a narrow margin of $0.02 in the first quarter of this year. Sony's earnings report beat expectations by a huge margin of $1.28 in the company's most recent quarterly report. Sony reported an earnings per share (EPS) of $1.72 or 290% higher than the $0.44 expectation. When comparing the first quarter of 2020 to the second quarter of 2020 for Sony, the company increased their earnings by $1.62 quarter-over-quarter. Sony currently sports a price-earnings ratio of 16.25 and a trailing 12 month EPS of $4.76.

Sony Corporation has a market cap of $94.26 billion and a book value of $24.08 billion. Despite its large market cap, the company only has a price/book value of 3.21. As a reminder, the price-to-book value (P/B) is the ratio of the market value of a company's share price over its book value of equity.

The company grew its revenue numbers slightly between 2017 and 2019, with revenue falling off in 2020. Aside from the first quarter of this year, Sony has consistently grown their net income on a quarterly basis. Sony also saw exponential growth in annual net income between 2017 and 2019.

Sony has approximately $230 billion in assets on its current balance sheet. $33 billion of that balance is in cash and cash equivalents. The company also has $182 billion in liabilities, with about $9.5 billion in long-term debt. This leaves the company’s equity standing at $48 billion.

When it comes to dividends, Sony’s has paid out small dividends semi-yearly since 2008, with the exception of 2014 and 2015 where yearly dividends were paid. The growth of Sony’s dividend has been largely inconsistent over the years.

Since the SNE hit its lows in March of this year, the company has bounced back with a 28% burst. However, this too impressive of a jump when considering the current market and Sony’s volatile stock history. The stock reached $126.50 per share in 1999, but ultimately dipped just as quickly as it rose, as the stock market crashed in 2000. After bottoming out at around $12 per share in 2012 the stock has had immense growth once again. It does seem, at the moment, that SNE stock’s volatile days are behind it. The stock has demonstrated significant growth over 500% in the last eight years.

The bottom line is that Sony has lacked of considerable revenue growth over the past few years. Cost reductions are the primary cause for the company's net income. Utilizing the anticipated upcoming release of the company's latest gaming console, Sony is looking to increase its revenues once again. As the gaming industry continues to shift to cloud gaming, Sony will be will positioned for a future subscription revenue business model and a major reduction in manufacturing expenses.

The biggest risk for Sony's upcoming release of PS5 may be the high price of the console. There is currently speculation that the PS5's $499.99 price may prove too high for the majority of consumers. If Sony can maintain their loyal consumer base, there is strong potential that the company continues growing on the bottom line for years to come, especially with the cloud gaming. In addition, Sony’s strong recent earnings report likely will have investors jumping on board in lieu of its gaming competitors ahead of the next-gen console release.



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