Sony (SONY -0.66%) is one of the world’s top game, film production, and music publishers. The company also sells consumer electronics and image sensors, and is preparing to spin off its financial services group in the next few years.
Over the past decade, Sony’s stock price has increased nearly 430%. But the Japanese conglomerate, with a market capitalization of $110 billion, is still worth far less than Walt Disney, which has a market capitalization of $176 billion, and video game rival Microsoft, which has a massive market capitalization of $3.1 trillion. low. Does Sony have what it takes to rise more than nine times over and become a $1 trillion stock by the end of this decade?
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Understanding Sony’s business
In fiscal year 2023 (ending March 2024), Sony generated 33% of its net sales from its Game & Network Services (G&NS) segment. This segment includes PlayStation consoles, games, and related services. The Entertainment, Technology and Services (ET&S) segment, which accounts for 19% of net sales, sells cameras, personal entertainment devices, home entertainment devices and other consumer electronics.
Both of these businesses are cyclical. As we approach the fourth anniversary of the release of PS5 in November 2020, Sony’s game business is cooling down. The company’s ET&S business has struggled with sales of new cameras and other entertainment equipment.
Sony Music’s music division, which handles its publishing business, accounted for 12% of sales last year. The film division, which produces television shows and movies, brought in 11% of sales. These two media businesses are generally difficult to predict because they rely heavily on hit albums, shows, and feature films, but licensing content to streaming media platforms offsets some of that volatility. I am.
Sony’s Imaging & Sensing Solutions (I&SS) division, which manufactures image sensors for cameras and mobile phones, accounted for 12% of sales. This business typically follows the boom and bust cycles of the smartphone market. Sony’s remaining revenue primarily comes from its financial services business, but it plans to begin spinning off non-core businesses next year.
How fast is Sony growing?
From FY2013 to FY2023, Sony’s revenue grew at a compound annual growth rate (CAGR) of 5%. Much of that growth was driven by steady expansion in the G&NS, Music and Video segment, offsetting the cyclical volatility of the I&SS business and slower growth in the ET&S segment.
Sony has also streamlined its consumer electronics division over the past decade by shutting down its PC business, spinning off its TV business and scaling back its struggling smartphone business. The company also has a deal with Disney that ties its Spider-Man movies into Marvel’s vast cinematic universe, with Sony potentially selling the Spider-Man film rights to Disney for a tidy sum in the future. There is constant speculation that this may be the case.
Going forward, Sony’s G&NS business faces an uncertain future. Earlier this year, senior vice president Naomi Matsuoka admitted that the PS5 had failed to meet the company’s initial sales projections and was already entering the “late stages of its lifecycle.” Sony’s games division has also begun porting its own published PS games to Windows PCs.
Most analysts expect Sony to launch the PS6 in 2027 or 2028, but it’s unclear whether the next console will perform better than the PS5. If the PS6 also fails to wow the market, Sony may need to release its first-party games on other platforms or expand its cloud gaming services to reduce dependence on its own hardware. I don’t know.
The launch of the PS6 should coincide with the completion of the spinoff of Sony’s financial services division over the next two to three years. Sony plans to distribute approximately 80% of the group’s shares to investors through special dividends during the same period. These payments may make Sony a little more attractive to income investors, who are probably not too impressed with the current expected dividend yield of 0.6%.
But will Sony become a trillion dollar stock?
Analysts expect Sony’s sales to remain roughly flat from fiscal 2023 to fiscal 2026, as it spins off its financial services division. We expect EPS to grow at a CAGR of 7% as we benefit from the spin-off and grow other core businesses.
Assuming that Sony meets these expectations and continues to grow EPS at a moderate CAGR of 5% from FY2026 to FY2031, with a forward P/E ratio of 16x over that five-year period, the company’s stock price will be It could rise by nearly 50% by 2030. If the Japanese yen finally recovers from a three-year slump against the US dollar, it could post even bigger gains.
But even if Sony were to double its current market capitalization, it would only be worth $220 billion. Therefore, for now, it is doubtful whether Sony will come close to joining the 12 zero club by the end of the decade. That said, it can be a well-rounded strategy for investors looking to get some exposure to the gaming, media, chip manufacturing, and consumer electronics markets.
Leo Sun has no position in any stocks mentioned. The Motley Fool has positions in and endorses Microsoft and Walt Disney. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
