Sony Corp ADR (NYSE:SNE), the tech giant which was once viewed as old and decaying, roared back in dramatic fashion on Tuesday as it reported record profits which smashed analyst expectations. As Reuters reported, Sony’s profits from July to September “jumped almost 350 percent to 204.2 billion yen” compared to a profit of 45.7 billion yen during the same period last year. Furthermore, “Sony raised its full-year operating profit forecast by 26 percent to 630 billion yen” compared to a Thomson Reuter forecast of 585 billion yen.
Sony’s stock value has unsurprisingly surged in value after such impressive results, jumping from $38 to $43. While any such sudden jump will naturally create concerns that investors may be overreacting, this is an appropriate response to Sony’s success. Sony has successfully restructured itself into a profitable niche of games, superconductors, and other businesses which have thrived. It also has other avenues to grow into such as artificial intelligence. Investors should legitimately consider buying Sony and watch it continue to grow.
Knowing its Niche
A quick look at Sony’s earnings report underlies the reasons for its recent success and how the company has found its niche. In Sony’s words, the significant profit increase “was mainly due to the improvements of operating results in the Semiconductors and G&NS [Game and Network Services] segments as well as All Other.” G&NS operating income rose from ¥19 billion to almost ¥55 million, while Semiconductors went from a loss of ¥4.2 billion to an income of ¥49 billion. Operating income rose in all of Sony’s sectors with one exception which will be discussed below.
Sony’s impressive games numbers are hardly a surprise. In addition to the success of the PlayStation 4, the Wall Street Journal also points out the importance of the mobile game “Fate/Grand Order,” which has millions of players as well as a player base willing to spend thousands of dollars to summon historical figures.
Sony can also point to its success in the semiconductor business, where it has wisely pushed mobile image sensors which can be used with other smart phones, as well as the success of Sony Pictures thanks to “Spider-Man: Homecoming.” Sony’s products are successful practically everywhere, which speaks well to how this company has reorganized itself under the current leadership and has made great decisions.
Growth Opportunities
If this success is not good enough, Sony has made it clear that it does not intend to rest on its laurels even after such success. The company is determined to branch out, with particular emphasis on the increasingly important field of artificial intelligence.
On Wednesday, Sony announced that it would be bringing back the Aibo, a robotic toy dog which it had first began making back in the 1990s until stopping in 2006. Ars Technica reports that the Aibo will cost over $1,700 and will only be sold in Japan. But what makes this decision so important is that it signifies that Sony is growing more interested in artificial technology. Given how important and lucrative that technology will be, especially in Japan, this is a good sign that the company is staying aggressive.
Aside from the Aibo, Sony has plenty of major projects to look forward to. The upcoming holiday season means that the PlayStation 4 will see new games such as “Erica” and “Final Fantasy XV: Episode Ignis,” and demand for Sony’s semiconductors will still remain high. There is no reason to assume that the conditions which have propelled Sony to these heights will fade away soon.
It should be noted that not everything is quite rosy for Sony. Despite the success in its games department, Sony is not upgrading its games operating profit forecast in light of intense competition from a resurgent Nintendo.
Furthermore, Sony’s mobile department struggled in the quarter, with virtually flat growth and an operating loss of ¥2.5 billion compared to a profit of ¥3.7 billion the year before. Sony can point to insurance costs, but the reality is that Sony’s phones are a failure and should be shut down as soon as possible. Given the small size of its phone division, failure here is a not a serious concern.
Growing, Innovative and Profitable
Sony has been successful since the beginning of the year, and there is plenty to like both in its wild success earlier as well as its potential for growth. PS4 sales will continue to thrive as the company adds in new games, and its commitment towards AI research as shown by the Aibo release is a good sign given the growing importance of the field.
Sometimes, going with the flow is not a terrible idea. The Sony bandwagon is large right now for a reason, and it will continue to thrive going into the holiday season. Sony still has plenty of room to grow, and investors should consider hopping on now rather than later.