NPD data is out and Sony (NYSE:SNE) came out as the clear winner in the console race. According to NPD data for the US, Sony's PS4 saw volume +49% versus Microsoft's (NASDAQ:MSFT) Xbox, which saw volume only up +6%, essentially outselling the box by roughly 15%. Although both companies performed above market growth of 4%, it is clear that Sony is the key beneficiary of the trend thanks to PS4's technology superiority over the Xbox, optionality into web TV services such as Vue and the opportunity to add PlayStation VR once the product is launched to the mainstream. Solid PS4 sales are also accretive to Sony's software sales and I expect this to drive the profit expansion for the game segment in the near-term. Remain bullish on SNE.
Looking at the NPD data from the last two months of 2015, Sony outsold the Xbox by 17% combined. This is much higher than the +12% outselling of the Xbox since the launch of the PS4. Relative to the prior year, PS4 volume was +65%, exceeding the meager +6% growth seen in the Xbox. This is particularly important given that strong sales in the PS4 certainly offset the declining sales of the PS3. Unfortunately for MSFT, slow Xbox One sales were not enough to offset the decline in Xbox360.
The strong PS4 sales are very accretive to the PlayStation software growth and the penetration of the PS Vue web TV service. On the software side, I note that Call of Duty: Black Ops III from Activision (NASDAQ:ATVI) and StarWars Battle Front from Electronic Arts (NASDAQ:EA) both were hit titles that benefited from the rising PS4 sales. In addition, digital sales of games over the PlayStation network may have also benefited from the PS4 penetration.
Going forward, I see several factors that are supportive of SNE's near-term growth outlook. First, upcoming titles from ATVI, EA, Take-Two Interactive (NASDAQ:TTWO) and Capcom (OTCPK:CCOEY) will continue to drive PS4 sales, thereby extending the lead of PS4 over Xbox. Second, the cord-cutting trend in the US favors PS Vue, which is gradually replacing the typical cable boxes that we frequently use for TV consumption. Finally, the expected rollout of VR for PlayStation could result in an acceleration in PS4 sales assuming that the PS VR is priced for the mass market.
On the financial side, rising digital games sales are a positive for SNE's profits given their high-margin profile. I believe there is a good chance SNE could generate higher profit per game and ultimately beat the game segment OP guidance.
SNE remains one of my favorite Japanese tech stocks and I reiterate my bullish view.
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