Yahoo Finance SNE Stock Soars as PS4 Growth Overshadows Smartphone Decline
Shares of Japanese electronics powerhouse Sony (SNE) rallied more than 7 percent higher on the heels of its fiscal first-quarter earnings report, after SNE posted a surprise profit that Wall Street never saw coming.
Before the first-quarter report SNE stock was already up nearly 25 percent in 2016, so Sony shareholders continue to enjoy outsized returns during a year in which the Standard & Poor's 500 index is up less than 6 percent.
Sony's revenue fell 10.8 percent to $15.66 billion in the June quarter. Net income fell 74.3 percent to $205 million. That breaks down to earnings per share of 16 cents, which crushed the 28-cent-per-share loss analysts were expecting.
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The strength of Sony's game and network services segment was largely behind the profit beat, as PlayStation4 operating income more than doubled from $189.9 million a year ago to $428.4 million in the most recent quarter. Strong software sales on the PS4 network, combined with falling PS4 hardware costs, made for the impressive profit uptick.
Who knew that investing in video games could be so profitable?
Not all sunshine and rainbows. SNE stock is soaring on the earnings beat, but revenue is a less-rosy story. Sony slashed its full-year revenue forecast by a fairly significant margin -- 8.7 percent -- as the strengthening Japanese yen puts a dent in Sony's results.
When the yen strengthens against the dollar, it makes Japanese products and services more expensive for the U.S., which is Japan's second-largest export destination next to China. Through June 30, the yen had appreciated 12.3 percent over the past 12 months against the greenback.
Sony also blamed weak sales of still and video cameras for part of its sales shortfall. The 2016 Kumamoto earthquakes made procuring camera components much more difficult, slowing down that aspect of its business.
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The Kumamoto earthquakes also contributed to weakness in SNE's semiconductors and imaging products segments, the company says. But that wasn't the only problem dragging its semiconductors segment down.
The semiconductors category includes the sale of image sensors, a crucial part of cameras in smartphones. Apple (AAPL) is one of Sony's end-customers, and considering the iPhone is on a global sales slump, that didn't help results either.
Going forward. It's rare to see a quarter like the one Sony just had, where revenue is a clear area of concern but profits manage to blow investors away. It's great to see the PS4 pulling its weight, and Sony is well-positioned for the continued growth of the gaming industry.
As the smartphone industry matures across the globe, the PS4 -- and the games Sony sells on it -- give SNE shareholders some much-needed exposure to a growth market.
For many video games, owning hard copies the games themselves is no longer strictly necessary. That's great for Sony, which can use the PS4 as a platform to sell software-based games at much higher margins.
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Still, it wouldn't hurt to see a rebound in the smartphone market. And if the iPhone 7, which is expected to debut in mid-September, ends up flying off the shelves, Sony's picturesque 2016 should continue in style.
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