Sony Group (NYSE:SONY) is slightly lagging the S&P 500 Index in 2021. However, after flirting with being negative for the year, shares of SNE have been having a nice rally. Since Aug. 19, the stock is up 21% and with the holiday season approaching, the rally may have some legs.
I know summer has just turned to fall, but that only means the holidays will be here before you know it. I’m not trying to rush the season, but wasn’t it vice president Kamala Harris who suggested Americans get an early jump on their holiday shopping? The vice president was referring to supply chain difficulties that are likely to linger into 2022.
However, some consumers are still trying to fulfill wish lists from the last holiday season. And one of those items is the Sony PlayStation 5. Last year was supposed to be a big year for gaming consoles. However, it was right around this time when consumers began to realize that, despite the successful release of Apple's (NASDAQ:AAPL) then latest iPhone version, demand for semiconductor chips was going to outpace supply.
That isn’t to say that Sony didn’t sell any PlayStation’s in 2020. In fact, the company sold 4.5 million PlayStation 5 consoles in the quarter ended Dec. 31. And total revenue for the company’s Game and Network Services division in the third fiscal quarter was $8.4 billion. That was approximately one-third of the company’s quarterly revenue.
But if the recent in-store drop of PlayStation 5 consoles at multiple retailers is any indication, demand remains strong. And that should bode well for the company’s revenue and earnings in the upcoming quarters.
What is Zee?
If the question is what company could make Sony a legitimate challenger to Walt Disney Company (NYSE:DIS) in India, the answer is Zee. This brings us to another part of Sony’s business, Sony Music. The Japanese-based company is looking to infuse $1.6 billion of growth capital into a United States business unit while it takes a majority stake in Zee.
According to insiders, this deal will enhance the new company’s digital platforms and allow it to bid for broadcasting rights to live sports. A former Disney executive speaking on anonymity said the merger could be the first viable challenge to Disney in the Indian market.
And there’s good reason that Sony would be looking to gain access to this market. Accountants from KPMG estimate the television entertainment industry was worth $10.5 billion in 2020. Sony Music accounted for approximately 11% of the company’s revenue in the last quarter.
The deal is expected to close at the end of 2021 which may provide another catalyst for the stock.
The rest of the business is returning to form
Up until now, I’ve only covered two business units that account for about 40% of the company’s revenue. The rest of the revenue comes from three other business units: Electronic Products & Solutions, Imaging & Sensing Solutions, and Financial Services.
In 2020, the company’s gaming and music businesses outpaced the growth from their core businesses. So far in 2021, the script is flipped and that’s what should intrigue investors. As the company’s core business comes back online, it should still enjoy some growth in the other businesses.
Wait for confirmation
During this recent run-up, SONY stock appears to be forming a higher support level that corresponds to the 20-day moving average crossing sharply above the 50-day moving average. But the stock does appear to be nearing an overbought level. Investors should look for the stock to pull back before buying it at these levels.