Update: Sony Q1 Earnings Confirm Turnaround Thesis

| About: Sony Corporation (SNE)


Sony reported a revenue increase of 5.8% to ¥1,809.9 billion ($17,920 million) and a net profit increase of nearly 800% to ¥26.8 billion ($265 million).

Profit from the mobile communications business disappointed, as the company cut its FY14 outlook by 11.1% to revenue of ¥1,360 billion and operating profit of 0.

The report confirms my original thesis which stated that Sony is on its way to achieve a successful turnaround.

Today's Q1 earnings report was a pleasant read for Sony (NYSE:SNE) investors. Although the company reaffirmed its forecasted loss of ¥50 billion for FY2014, the report did show progress in key business segment. In my previous article, I stated that the company is well on its way to achieving a successful turnaround. Today's Q1 earnings confirm my original thesis.

For me, the most upbeat thing in today's report was the massive growth in Sony's Game & Network Services (G&NS) segment. Compared to Q113, the company reported growth of 95.7% in sales from ¥131.6 in to ¥257.5 billion, and operating income showed a gain of ¥20.7 billion from a loss of ¥16.4 billion to a profit of ¥4.3 billion. Sony stated that these figures were boosted by high PS4 sales which caused revenue from software sales to increase as well. This confirms my original thesis that Sony is finally starting to utilize and expand its PlayStation ecosystem, which is a fundamental part of the company's future business model.

Regarding the company's turnaround process, I was pleased to find that management did not change its full-year forecast of costs relating to the exit from the PC business and other strategic initiatives. For me, this is very crucial, as this shows that management is on top of the process, which indicates that the restructuring process will conclude this year. This is essential because Sony has had a history of breaking its promises to shareholders.

Overall, when not considering the drop in net income from its mobile communications segment (which is somewhat worrying), the report confirmed my belief in the company's turnaround.

Feel free to share your view about the Q1 report in the comments below, and I will take part in the discussion as well.

Disclosure: The author is long SNE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no intention of selling before 2015