Here's Why Sony Stock is a Buy Right Now

Until recently, the Japanese electronics and entertainment giant Sony Group (SONY)had taken a different approach to streaming. It acted as an “arms dealer,” supplying its film and television rights to streaming companies like Netflix (NFLX).

But now, Sony is making a multibillion-dollar push into producing more original content for its own use. This is part of a “creation shift” the company hopes will win it a greater share of the $3 trillion global entertainment industry. The company has spent $10 billion over the past six years to build a vast portfolio of games, films, and music - the three main business segments that account for 60% of its annual revenue.

This transition puts Sony right in the middle of a spending war for global content that is set to reach nearly $250 billion this year, according to the market research firm Ampere Analysis.

Sony's Move Into Media

This new focus and strategy seems to be a natural part of Sony’s evolution into a fully-integrated media company.

Already, Sony has leveraged its wide variety of media businesses to profit from the intellectual property (IP) it has acquired in its buying spree. This led to hits in recent years, including The Last of Us, which was converted from a PlayStation game into a hugely popular television series. The series is set 20 years into a pandemic caused by a mass fungal infection, which causes its hosts to transform into zombie-like creatures, which causes the collapse of society.

I suspect another game that will be converted to a movie or TV series soon is the highly successful Black Myth: Wukong. This action role-playing game is rooted in Chinese mythology. The blockbuster game is based on Journey to the West, one of the four great classical novels of Chinese literature.

And it's changing sales expectations for the PlayStation 5. Sales of the game had hit 10 million copies within three days of its release, making it one of the fastest-selling games in history. That translated to a surge in PS5 sales in China. PS5 transaction volumes more than doubled on Alibaba’s (BABA) shopping platform during the week before the game’s launch.

How Sony is Set to Profit from Anime

In addition to video games, I believe another area where Sony can find a profits gold mine is in its vast trove of anime cartoons. This has been a red-hot entertainment growth segment, and Sony is one of the biggest beneficiaries of the growing global audience outside of Japan for anime series.

The company has one of the world’s largest portfolios of Japanese anime cartoons, which was greatly bolstered by its $1.2 billion purchase of AT&T’s (T) anime streaming service, Crunchyroll, in 2021.

Crunchyroll has 15 million paid subscribers, and is releasing close to 200 titles a year, double what it was four years ago. It is one of the biggest anime platforms, with more than 130 million registered users across more than 200 countries around the world. The U.S., Brazil, and Germany are among its biggest markets. Another arm of Sony Group, Aniplex, is a leader in anime video and music production, and has also been growing outside of Japan.

Even though Sony is a huge company, anime is already showing up in the bottom line. In its latest quarter, Sony’s music business segment accounted for the biggest chunk of the company’s profit, thanks to its catalog of best-selling artists - a big part of the reason for music earnings growth. Sony Music is the world’s second-largest music company.

However, its anime business, which also falls under the music division, is another major profit growth driver. Sony revised up its sales forecast for both its music and gaming businesses by 3%.

And there is a lot more growth ahead for anime. Crunchyroll president, Rahul Purini, told the Financial Times: “Some of our research shows that there are over 800 million anime fans globally, and there are going to be a billion over the next few years.” So its current 15 million subscriber base has a lot of room to grow.

Sony also wants to use its know-how from its PlayStation Network service, including payments, security and data analysis, to improve engagement with Crunchyroll subscribers, which should expand growth opportunities. This makes sense; about 30% of PlayStation Network service customers watch anime, but only about 5% have Crunchyroll accounts.

Buy Sony Stock

Overall, Sony’s earnings outlook looks good over the next several years, supported by the expansion in IP sales in gaming, pictures, music, and anime. There’s also a potential boost from its semiconductor business on image sensor restocking by phone original equipment manufacturers (OEMs).

I also expect faster margin expansion from Sony’s monetization of its entertainment IPs and gaming platform. The planned partial spinoff and listing of its financial group in October 2025 will reduce Sony’s stake to less than 20%, and will also help to reduce overall earnings volatility.

Add it all up, and SONY is a buy below $95.

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On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.