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Summary

  • Sony has managed to sell 3.5 million of the PlayStation 3 and 4 consoles.
  • According to industry experts, if Sony puts the right strategy in place, both the game and subscription business can rake in $1 billion for the 2016 fiscal year.
  • The net income has fallen from $1.044 billion to -$1.340 billion, a 228.4% decrease.

Sony Corp (NYSE:SNE) is eyeing to gain a strong foothold in the consumer electronics business with its crown jewel the PlayStation 4. The conglomerate is building a strategy around the premium gaming console to bounce back from the $10 billion dollar deficit it has had to endure during the last 6 years according to Reuters.

The success of the PlayStation and its related products/services has been doubling profits for the electronics giant year over year. The momentum, however, is still not enough to avoid a $468 million dollar collision at the end of the financial year ending in March 2015.

Management Changes and New Strategy Implementation

Sony is currently rethinking its approach to coax more dollars from its video game business and plans to decrease hardware manufacturing costs. With sales of both PlayStation 3 & 4 holding steady, the company has managed to sell 3.5 million consoles combined. Furthermore, Sony plans to promote its latest console as the quintessential living room gadget capable of offering streamlined services such as video games, movies and music all on one central device. The "one device to rule them all" strategy is designed to cut costs on the consumer's end and eliminate the need for individual multimedia players.

The plan to increase PlayStation's revenues is being formulated by a group of executives brought on board personally by current CEO Kazuo Hirai. According to industry experts, if Sony puts the right strategy in place, both the game and subscription business can rake in $1 billion for the 2016 fiscal year - making it one of the most profitable years for the company.

PlayStation Streaming Services

The PlayStation has been plagued with network issues ever since it became internet capable back in fall of 2006. To make matters worse the company had to endure a major setback when its streaming platform - PlayStation Network - was targeted by hackers back in April of 2011, resulting in a 26-day blackout of the network along with loss of sensitive user information - a heist industry experts dubbed preventable.

Atsushi Osanai - an associate professor at Waseda University's business school - stated that "Network services have been a long-running issue for Sony." It is one business unit that Sony can learn a few lessons from companies such as Apple whose iTunes has dominated the streaming services market. A host of new and efficient streaming services can give PlayStation 4 the necessary firepower it needs to strengthen its grip on the console gaming sector.

With the cutthroat competition that prevails in this field, it is of utmost importance to be in the lead or, at least, be amongst the top few companies to be able to lure investors. Sony has realized the importance that is associated with constant innovation owing to which it has decided to build a future around its most popular consumer product: the PlayStation.

The plan, however, involves an idea which focuses on how to make money with old titles as well without having to come up with brand new games in order to make money. Sony Corp has revealed plans to recover the losses of around $10 billion that it has had to face over the past 6 years via a whole new PlayStation plan. This plan will obviously have impacts on the company's stocks which is why I will be discussing this move made by the company.

Financial Analysis and Analyst Ratings

Despite the success being enjoyed by the PlayStation 4, stock analysts have rated the company a "Hold". As far as PlayStation is concerned Sony has had its share of weaknesses and strengths. On one hand the company has left rival Microsoft's Xbox One playing catch up both in terms of price and performance while on the other it is marred with security and network issues that have proven to be a nightmare for the company on more than one occasion.

A bird's eye analysis reveals that the company has fared incredibly well in multiple areas such as overall financial standing, cash flow and current revenue growth. Revenue growth far exceeded the industry standard of 11.0%. Revenue rose by 41.3%, same as one year prior. Cash flow has substantially increased by 59.15% to almost $4.1 billion. Sony also performed better than the industry standard cash flow rate of 38.87%.

In terms of net income the firm has well underperformed from the same quarter from one year ago. The net income has fallen from $1.044 billion to a loss of ($1.34 billion) which is a 228.4% decrease. Furthermore, a clear sign of weakness in the company is the lower return on equity than ROE based on the same quarter from one year ago. Compared with other similar corporations in the Household Durables Industry, Sony far trails both the S&P 500 and industry average.

With both Xbox One and Nintendo's Wii trailing by several million units, Sony needs to strengthen its grip specifically on the Chinese market which is slowly opening up to Microsoft's latest offering. A huge gamer demographic opting a rival console can spell further bad news for Sony's dismal stock performance unless it deploys the right countermeasures.

Investors must watch to see if Sony can deliver on both console performance domestically and internationally. More importantly the company must reduce losses in certain areas of the Company. Sony Music has been one of the more profitable ventures, with some of the more famous artists, from Michael Jackson to One Direction, being part of the Sony team. However, investors may push Sony to sell portions of this sector along with its poor TV division in order to make a deal. Either way, investors feel that Sony has to change course and prove itself over the next few quarters, or else the Sony may move beyond the point of no return, in which a few successful products will no longer keep the Sony afloat.

Source: Sony - A Hold For Investors