Will the PS4 Save Sony?

Buzz but no turnaround.

Bryan Borzykowski 0

If you followed the live coverage of Sony’s big PlayStation 4 announcement on Twitter last night, you would have been left with the impression that their new entertainment system is a flop. But until actual video gamers—and not a bunch of tech journalists—get their hands on the machine during this year’s holiday season, no one will know for sure whether the PS4 will be as big a hit as the company thinks it will be.

Investors better hope that the machine is a success; Sony’s share price has struggled over the last five years, falling nearly 70% since February 2008. That’s partly due to lagging PlayStation sales—it’s now in third place behind Nintendo and Microsoft’s systems—and because of the rise of mobile gaming.

The immediate investor reaction hasn’t been kind, with the stock falling 2.4% on February 21, the day after the announcement, but S&P Capital IQ isn’t ready to count out the company just yet. In a note released today, analyst Michael Soures, pointed out that the PS4 will be more interactive with social media and he likes the updated graphics. There’s no price point but, he says, “we think this console will generate a significant amount of buzz among gamers.”

Right now, the company has a hold rating on Sony, but does say its share price could climb from about $14 today to $16 within the next 12 months. Sources also think that overall fiscal year 2013 revenues will climb by 1.7% thanks to strong emerging markets growth and a February 2012 acquisition of Sony Mobile Communications.

Will there be enough PS4-hungry gamers to turn the company around? Fitch Ratings doesn’t think so—it points out that Sony cut its annual sales volume target for its PlayStation Portable and PlayStation Vita console from 10 million units in November 2012 to 7 million units this past February, while its operating profit from its game segment dropped to 3 billion yen in the first nine months of the fiscal year from 29 billion the year before.

While there’s no question that it will take sales growth to turn this company around, the majority of analysts do have a hold or neutral weighting on the stock. That suggests that, for people who do own Sony, don’t dump it yet—the few dollar gains S&P Capital IQ is predicting could give your portfolio a little boost in this still volatile market environment—but new buyers may want to seek out a better performing tech company.

Leave a comment

Your email address will not be published. Required fields are marked *