Sony Stock Slips on PR Miscues, but Remains a Solid Buy on PS4 Dominance

Josh Enomoto

Updated Wed, Oct 10, 2018, 2:31 AM

To provide some background, the PlayStation 4 is the world’s most popular gaming console. No one else comes close. Sony has sold more than 80 million units over the past five years. That dwarfs the offerings from rivals Microsoft (NASDAQ:MSFT) and Nintendo (OTCMKTS:NTDOY), providing a strong bias for SNE stock.

To give the dominance even more context, by the end of last year, Sony had sold two-and-a-half times more PS4s than Microsoft did with its Xbox One. Assuming that the PS4 and Xbox One represent a two-console race, Sony would control over 70% market share.

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And make no mistake: the PS4 is critical to the future success of Sony stock. During the company’s lean years, its video-gaming division kept the lights on and then some. SNE can survive without certain product segments, but it will die without PlayStation.

That’s a major reason why the cross-play news was so crucial. The controversy began when Fortnite players originally playing on the PS4 couldn’t access their game account on Nintendo’s Switch console. Gamers were understandably upset because everyone knows they’re polygamous: no one stays loyal to any one platform.

Sony stuck to their guns at first because it has an unhealthy obsession with proprietary products. For them, it’s a way to milk more money out of the consumer. But it’s this kind of old thinking that has previously ground down SNE stock.

Knowing Sony, I knew they would recant, and so they did. But rather than gloat, I think it’s a great time to consider Sony stock.

Popular, Exclusive Titles Underline the Case for Sony Stock

Before we get into why SNE stock will emerge from its current corrective phase, I’d be remiss if I didn’t mention another challenge. Earlier this month, the company announced that it won’t host its annual PlayStation Experience conference this year. The news hurt SNE shares but I believe it was a temporary blip.

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On the surface, the announcement is embarrassing. Management disclosed that they didn’t have enough headline-generating news to justify a full-on conference. The main issue is that the PS4 has already dominated the Xbox in the console wars this year. With incredibly popular and exclusive titles — including “Spider-Man” and “God of War” — Sony left an indelible impression on gamers.

Even our own John Kilhefner willingly and deliberately fell into the spider’s web. But now, the consumer-electronics giant doesn’t have as many exclusive titles to promote for next year.

The way management phrased their announcement didn’t help matters. Perhaps they need to work on their public relations. Either way, I wouldn’t give up on Sony stock.

While they may not have as much exciting news for 2019, Microsoft doesn’t really offer much competition. Sure, they are releasing several exclusive titles, but those arguably lack pizzazz. Aside from extensions of their popular franchises “Gears of War” and “Fallout,” most of the new releases are filler.

SNE lacks outright, new-release numbers, but it more than makes up for it in quality. Next year, Sony will drop “The Last of Us: Part II” and likely “Ghost of Tsushima.” The former title’s predecessor sold more than 17 million copies as of June. Needless to say, enthusiasm is at a fever pitch.

And unfortunately for Sony competitors, the situation is only going to get worse for them.

Compelling Synergies Help SNE Stock

During the rough years following the Great Recession, Sony’s size and disparate product categories became a liability. Management wanted to keep the umbrella going, even though it became painfully apparent that cuts were in order.

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The leadership eventually made those changes, but they didn’t cut or spin-off their core assets. Today, we can see how that decision laid the framework for a broader recovery in Sony stock.

For all the miscues in prior years, Sony got its entertainment portfolio right. This in turn created natural synergies for the company. For instance, SNE shares the Spider-Man character with Marvel Studios and Disney (NYSE:DIS). Therefore, it makes sense that they produced a compelling and exclusive video game based off the comic-book icon.

But Sony’s story-telling prowess is evident in most of their exclusive titles. “The Last of Us” wouldn’t sell so many copies if its narrative didn’t engross gamers in its post-apocalyptic storyline. A similar statement can be made about the “Uncharted” franchise.

A great many gamers want to be transported to another world. Sony has become a master at weaving gripping tales. This component won’t change due to a PR misstep, which is why I’m still digging SNE stock.

As of this writing, Josh Enomoto is long SNE stock.