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The Sony Group Corporation (earlier known as Tokyo Telecommunications Engineering Corporation) was established in 1946 with a capital of 190,000 yen (~$1300) and approximately 20 employees. With Sony’s spirit of “doing what has never been done before,” the company has released multiple “first” products across segments such as music, financial services, imaging, entertainment, electronics, education, and pictures.
“Sony is unique in that we come from a background in TV manufacturing. We take pride in our picture technology. We look forward to showing customers our immersive experience and realism,” notes Kazuo Kii, Executive Deputy President, Sony in an interview. He further imagined Sony being to esports hardware as what Nike is for Basketball shoes.
Business Model of Sony Group
As a market leader in the entertainment industry, Sony’s business model is built on high-quality products and exemplary customer service. The company manufactures portable, automobile and home audio systems, televisions, digital and video cameras, gaming consoles, semiconductors, printers and computers. The company is also a big name in the movies business.
Sony’s business is centered around its distribution channels, thanks to its presence in over 70 countries with over 1,000 subsidiaries. Sony has often presented the market with premium products with exclusive features. The company advertises the design and performance of its products and often secures celebrities for promotions.
The company’s Q2 2022 operating profit of 307 bn yen ($2.07 bn) was better than the average estimates of 286.7 bn yen as the movies and music segment numbers got a boost from the falling yen. Streaming services and anime content sustained the overall profit outlook.
For the current fiscal year 2022, the company revised its outlook for operating profit to 1.16 tn yen, which fell short of the previous projection of 1.2 tn yen. The weaker yen, lower estimates for third-party software sales on the platform, and expenditures associated with its Bungie Inc. acquisition were all taken into consideration when Sony revised its outlook for the fiscal year 2022.
Sony Group Corp. announced in May 2022 a buyback program of 200 bn yen ($1.5 bn) which included the repurchase of almost 25 million shares over a year. The company announced a similar buyback program in 2021 after reporting below-expectations quarterly profits. Component shortages and logistical issues hampered the supply of Sony’s flagship PlayStation 5 gaming console to the markets, impacting the final numbers.
Sony’s Stock Movement
The technology industry has been on a decline for the past year due to supply chain issues, the Russia-Ukraine war, and disruption in demand. Sony Group Corp has a primary listing on the Tokyo Stock Exchange, with its ADRs listed on the New York Stock Exchange.
The US-listed Sony stock offered an 11% return in the last 6 months of 2021 to its investors while the rest of the S&P 500 stocks underperformed. The diversity in the business model of Sony offsets the loss in struggling segments. This is one of the few shares which was trading at the valuation ratios of 1.7 times trailing sales and 17.6 times earnings in early January 2022. Especially after the resurgence of the movie business with “Spider-Man: No way home” which made a whopping $1.9 Bn at the worldwide box office.
Sony shares took a 7% dive after the announcement of a trimmed profit outlook for the rest of the fiscal year. “Although they may blame weaker PS5 sales growth of just over 4% YoY for this, the real reason looks to be higher development costs the firm has assumed through its aggressive acquisition of game developers,” Amir Anvarzadeh of Asymmetric Advisors told Bloomberg.
Sony’s stock has taken a beating in 2022, losing over 40% of its value in the past 12 months till October end. The stock is currently trading close to June 2020 levels. It has a PE ratio of 13.14, and a forward PE ratio of 11.02. The current price-to-book ratio stands at 1.75.
What’s next for Sony Group
The recent cross-industry joint venture announcement in October 2022 between Sony Group and Honda Motor opened an all-new market for the Tokyo-based conglomerate. The partnership which will target the premium segment in the EV market is an effort by the two Japanese firms to pool their resources and overtake rivals like Tesla, Volkswagen AG, China’s Xiaomi Corp. and Taiwan’s Foxconn Technology Group.
“The mobility industry is reaching a time of transformation, with digital technology and software at the epicenter,” said Yasuhide Mizuno, Chairman and CEO of Sony Honda Mobility in the news conference. Sony Honda Mobility Inc. will produce EVs at Honda’s North America factory while the sales and customization will happen online. The first deliveries are scheduled for 2026 to their North American customers followed by sales in Europe. “Software will be our strength, compared with our EV rivals,” said Izumi Kawanishi, CEO, Sony Honda Mobility Inc.
“This announcement changes things as it makes Sony’s likely strategy in the area much clearer. Sony has a variety of applicable technologies in the area,” says Insight Provider Mio Kato of LightStream Research who publishes on Smartkarma.
The Tokyo-based conglomerate has been heavily investing in esports for the past two years with products like the PlayStation system and hardware for personal computers and smartphones. Sony Group plans to dedicate 49% of its PlayStation Studios development budget to live service games by the end of 2022. It wants to increase it to 55% by 2025 from just 12% in 2019. The group predicts that by the end of 2025, it will have twelve different live service games, up from just one right now, as per the investor presentation in May 2022. In February 2022 Sony acquired Bungie, the studio responsible for two of the best gaming franchises, Halo and Destiny at $3.6 bn.
Sony is also looking at mass-producing 2 million units of PlayStation VR2 headsets by March 2023. According to Sony’s roadmap, the PSVR2 will be significantly more popular than the PlayStation VR headsets for the PlayStation 4, which took eight months to sell a million units. This news came after Sony announced its new DualSense Edge wireless controller for PS 5. All these new launches reinforced the company’s intent to grow its presence in the video and PC games segment. Earlier in June 2022, the Tokyo-based firm launched its new gaming gear brand called Inzone. However, economic instability might become a hindrance in this segment, especially if the economic crisis deepens and consumers shift from spending on non-essential items.
