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Sony(NYSE: SONY) is one of the world's top gaming, film production, and music publishing companies. It also sells consumer electronics and image sensors, and it's getting ready to spin off its financial services group over the next few years.
Over the past 10 years, Sony's stock price has risen nearly 430%. But with a market cap of $110 billion, the Japanese conglomerate is still a lot less valuable than Walt Disney, which is worth $176 billion, and its video game rival Microsoft, which has a massive market capitalization of $3.1 trillion. Does Sony's stock have what it takes to rally more than ninefold and turn it into a trillion-dollar stock by the end of the decade?
Image source: Getty Images.
Understanding Sony's business
In fiscal 2023 (which ended in March 2024), Sony generated 33% of its net sales from its game and network services (G&NS) division. This segment houses its PlayStation consoles, games, and related services. The entertainment, technology, and services (ET&S) division, which accounted for 19% of its net sales, sells its cameras, personal entertainment devices, home entertainment devices, and other consumer electronics.
Both of these businesses are cyclical. Sony's gaming business is cooling off as we approach the fourth anniversary of the PS5's launch in November 2020. Its ET&S business has been struggling to sell new cameras and other entertainment devices.
The music segment, which houses Sony Music's publishing business, accounted for 12% of its sales last year. The pictures segment, which produces its TV shows and movies, brought in 11% of its sales. These two media businesses are generally unpredictable because they rely heavily on hit albums, shows, and theatrical movies, but it's been offsetting some of that volatility by licensing its content to streaming media platforms.
Sony's imaging and sensing solutions (I&SS) division, which produces image sensors for cameras and phones, generated 12% of its sales. This business usually follows the smartphone market's boom and bust cycles. The rest of Sony's sales mainly came from its financial services business, but it will commence a spinoff of that noncore business next year.
How fast is Sony growing?
From fiscal 2013 to fiscal 2023, Sony's revenue grew at a compound annual growth rate (CAGR) of 5%. Most of that growth was driven by the steady expansion of its G&NS, music, and pictures segments, which offset some wild cyclical swings in its I&SS business and the tepid growth of its ET&S segment.
Sony also streamlined its consumer electronics segment over the past decade by shutting down its PC business, spinning off its TV business, and downsizing its struggling smartphone business. It also struck a deal with Disney to tether its Spider-Man films to Marvel's sprawling Cinematic Universe, and there's been constant speculation that Sony could eventually sell its film rights to Spider-Man to Disney for a big cash infusion in the future.
Looking ahead, Sony's G&NS business faces an uncertain future. Earlier this year, Senior VP Naomi Matsuoka admitted the PS5 had failed to meet the company's initial sales expectations and was already entering "the latter stage of its life cycle." Sony's gaming division also started to port more of its self-published PS games to Windows PCs.
Most analysts expect Sony to launch the PS6 in 2027 or 2028, but it's unclear if the upcoming console will fare any better than the PS5. If the PS6 also fails to dazzle the market, Sony might need to release its first-party games on other platforms or expand its cloud gaming service to reduce its dependence on its own hardware.
The PS6's launch should coincide with the conclusion of Sony's spinoff of its financial services division over the next two to three years. Sony plans to distribute about 80% of that group's shares to its investors through special dividends during that period. Those payments might make Sony a bit more attractive to income investors -- who probably aren't too impressed with its current forward dividend yield of 0.6%.
But will Sony become a trillion-dollar stock?
From fiscal 2023 to fiscal 2026, analysts expect Sony's revenue to stay nearly flat as it spins off its financial services division. They expect its EPS to grow at a CAGR of 7% as it reaps the benefits of the spinoff and grows its other core businesses.
Assuming Sony matches those expectations, continues to grow its EPS at a modest CAGR of 5% from fiscal 2026 to fiscal 2031, and still trades at 16 times forward earnings during those five years, its stock could rise nearly 50% by 2030. It could post an even bigger gain if the Japanese yen finally rebounds from its three-year slump against the U.S. dollar.
But even if you double Sony's current market cap, you would only get to $220 billion. So for now, it's doubtful Sony will come anywhere close to joining the 12-zero club by the end of the decade. That said, it could still be a well-balanced play for investors who want a bit of exposure to the gaming, media, chipmaking, and consumer electronics markets.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Walt Disney. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
