Most people start thinking about video games in one of two places, particularly these days. Microsoft (MSFT), or Sony (SONY).
The two have waged the console wars for about two decades now, and as one gains ground, the other often loses. Sony had been riding high for some time, but after yesterday’s news, the company saw careening losses that extended into premarket trading today. I remain bullish on Sony, though the latest news is a point worth watching.
Sony’s year in share price so far has been pretty wild. The company lost some ground in the early part of the year, but quickly shot up. It went from $95.49 to $116.44 within a little over a week.
Sony managed to hang on to most of that gain through the first half of February. However, the last half of February into March saw Sony struggle to stay above $100. Another recovery kicked in for April’s first half, but Sony lost ground once more, sliding to its lowest closing point of the year at $93.05 on May 11. From there, Sony began a gradual, choppy uptrend that lasted until about three days ago.
The news that Microsoft purchased Activision (ATVI) sent Sony down over 7% in trading on Tuesday, and the downward pressure continued into Wednesday’s trading session.
Sony now must face some significant competitive pressure, as it’s possible that some of the biggest gaming franchises around could be Microsoft exclusives. The drop is said to be the single largest since the plunge of October 2008. At the time, Sony recalled around 100,000 laptop batteries due to a potential fire hazard.
Wall Street’s Take
Turning to Wall Street, Sony has a Strong Buy consensus rating. That’s based on three Buys assigned in the past three months. The average Sony price target of $150 implies 32.9% upside potential.
Analyst price targets stand at $150 per share across all three ratings.
Good News, Bad News
In a nutshell, Sony investors — or those who’d like to be — are facing a good news, bad news setup. The bad news is that one of Sony’s biggest markets is about to get quite a bit tougher for it.
Sony made huge strides in the console wars in the last several years. First, there was the absolute win that was E3 2013. Sony trounced Microsoft therein by essentially saying “We’re not doing any of that” to all the features that gamers hated about the new Xbox One.
Microsoft, at the time, was requiring an always-on Internet connection just to use the device. It also made used games extremely difficult to use. Microsoft retracted most of the features in question, but by then, gamers made their decision for Sony.
Sony subsequently built on that early lead, offering up an array of console exclusives to help keep customers from jumping ship. It worked to a certain degree, and PlayStation 4 sales outpaced Xbox One sales for years to come.
Now, Microsoft’s recent moves to make a growing range of studios operate under its banner will leave Sony without many sources for console exclusives.
That’s the bad news. Here’s the good news. First, Sony will not be without console exclusives. Sony’s connection to the Japanese gaming market provides plenty of fodder for exclusive releasing. Consider the “Final Fantasy VII” remake, for example.
It’s been a Sony-only proposition since its release almost two years ago. Second, even without a lot of that gaming prowess, Sony still has its massive consumer electronics business.
Sony has already opened up PS5 accessibility by giving players the chance to buy direct from Sony. That’s going to likely endear Sony to players who are having a tough time landing a new console amid the ongoing chip shortage. Sony has also made some new moves toward improving its controller design.
Throw in a reliable dividend and things only get better. Sony’s dividend history goes back at least five years, reliably paying out in March and September each year.
The amounts have varied, but the general trend has been on the rise. In fact, the amount has tripled over the last five years. March 2016’s dividend came in at $0.08 per share, while September 2021 came in at $0.24.
Concluding Views
Microsoft’s purchase of Activision is going to hamstring Sony on a certain level. There’s little doubt about that.
The odds of a Microsoft-owned studio releasing content to other platforms is somewhat slim. It’s not impossible — Microsoft will want that revenue, certainly — but the notion of at least timed exclusives favoring Microsoft is likely.
Thankfully, Sony still has plenty of business to work with. It’s made a lot of friends among gamers in the last 10 years. It can still offer plenty of reason to stick with the company.
That, and a reliable dividend and plenty of other business, makes Sony an all-around powerhouse that’s worth being bullish about.
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