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This So-Far-Disappointing Trend Could Boost Sony Corp (ADR) Stock

James Brumley

Last week, diversified entertainment and consumer technology giant Sony Corp (ADR) (NYSE:SNE) passed a major milestone, selling more than 70 million units of its popular PlayStation 4 video game console. For perspective, Microsoft Corporation (NASDAQ:MSFT) has sold less than half of that number of its Xbox One console, and Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) has sold only a tiny fraction of its Switch (though the Switch wasn’t out last Christmas.)

This So-Far-Disappointing Trend Could Boost Sony Corp (ADR) (SNE) Stock

Source: Shutterstock

It’s an impressive achievement, to be sure. The question is: does it really matter? Video games are hardly the only thing the company does. Can that arm alone offset weakness in other arenas and fan the flames of bullishness for SNE stock?

In short, yes — as long as Sony plays one of its cards the right way in the coming year.

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Gaming Isn’t Game-Changing for Sony

The headlines are thrilling, to be sure. Not only does Sony make the world’s most popular video gaming system — its hardware is in more households than the competition’s — it also sells or licenses more video games than Nintendo and Microsoft do.

And if video games were the only thing that Sony did, these might be reasons to celebrate. Gaming is hardly the only thing this iconic company does, however.

Most people don’t readily recognize it, but Japan-based Sony has its finger in a lot of (too many, some would say) pies. Movies, electronics, music, computer components and, of course, video games. Gaming is its biggest arm in terms of revenue, to be fair, but still only accounts for about 20% of the company’s top line. That’s not enough to move the needle, so to speak, at the end of every quarter, even if news that Sony is the king of consoles is able to prod SNE stock just a bit.

What if, however, there was something on the horizon that could make gaming a much bigger deal for Sony than it currently is?

There may well be such a catalyst in the cards for SNE stock.

More Ready Now Than It Was Then

Calling a spade a spade, virtual reality has been something of a disappointment. The hype was palpable last year when Facebook, Inc. (NASDAQ:FB) launched the Oculus Rift headset and Sony unveiled its spin on VR in October of 2016.

The reviews of both were solid enough; consumers more or less knew what they would be in for and how it would work. But between a limited amount of media content to play with and a limited amount of genuine (read “willing to pay for”) interest in a complete immersive experience, the advent of virtual reality fizzled before it took hold. As a recent Marketing Week story noted: “At the beginning of the year, it was difficult to escape the hype around virtual reality (VR), with the technology widely tipped to conquer the mainstream by the end of 2017. However, these predictions have yet to materialise [sic]. In reality, 2017 was a bit of a stinker for VR.”

In retrospect, though, virtual reality may have been technically ready to launch then, but has only become effectively ready of late, and really won’t be fully ready — in the sense of marketability — until the coming year.

Why? Price issues, for one. The Oculus Rift initially cost $599. The most recent iteration sells for only $199. Sony’s VR headset, bundled with a game, is selling for the same price. That’s a much easier non-essential purchase to justify.

There’s also the not-so-small matter that the computers and consoles needed to properly power virtual reality headsets weren’t exactly affordable or accessible then. They are now. The relatively new PlayStation 4 Pro, which can be purchased for only $349, handles high-definition VR duties with ease, giving owners not just a powerful virtual reality experience, but a heck of a console as well.

Finally, while VR headsets were available (at a hefty price) a year ago, there was little point in buying them. Not only was the amount of content for them limited, it wasn’t readily accessible. That’s changed. Sony boasts a library of more than 100 virtual reality-enabled games now and, late last year, Facebook committed $500 million to creating virtual reality media.

In the meantime, others have come to the marketplace. But for all intents and purposes, virtual reality media as an industry is still gelling. The mold is almost firmed up, though.

Looking Ahead for SNE Stock

As for what this means to current and would-be owners of SNE stock, Sony seems to be one of the top two names that keep popping up in discussions of VR as a viable business. Facebook is the other one, though the two companies seem to be traveling down a different lane. Sony’s lane is gaming, while Facebook’s lane is experiences.

There’s enough business for both, to be fair, though Sony’s hardware experience (perhaps coupled with its technology and media experience) tilts the playing field in its favor, allowing the company to provide a complete soup-to-nuts experience.

And 2018 appears to be the year that what was supposed to happen in 2017, is actually going to happen.

At stake is a piece of a virtual reality hardware market that’s supposed to be worth almost $16 billion by 2020 and a VR gaming market that’s expected to be worth $45 billion by 2025. If Sony stays in its lane, it’s positioned to capture enough of those markets to provide a measurable boost to its top and bottom lines.

It’s about time.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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