Massive unemployment? The worst recession since the 1930s? Pfff, said gaming stocks.
As record-level layoffs sweep the country, US gaming giant Activision Blizzard
As you’ve probably heard, gaming stocks have been on fire during Covid. And now that the world is shutting down again, investors are scratching their heads in search of the game’s next hit.
But choosing these actions one by one could be a gamble. And if you are betting on gambling, there is a much more secure and predictable way to invest in this industry.
I’m talking about Sony (SNE).
The Japanese tech giant has put itself in a unique position to raise billions of dollars from most game companies over the coming year. I’ll tell you about that in a moment, but first a little bit of context.
Sony makes the world’s most popular console
You may know Sony by its logo on your TV or hi-fi speakers. And you’ve probably seen “Sony Pictures” scrolling through the opening sequence of a movie. But unless you’re into video games, you might not know that Sony is a major player in gaming as well.
You see, Sony is making Playstation the most popular game console in the world.
Since 1994, the company has sold over half a billion consoles. None of its rivals – Nintendo or even Microsoft
But the point is, Sony isn’t making a dime from consoles. In fact, every time his console rings a cash register, Sony loses silver. For example, Sony reportedly lost $ 60 on every sale of its flagship PS4.
The logic is simple. The company is selling its consoles short to bring more of them into homes. Then later, he earns a fortune by selling them games and subscriptions.
Sony is the apple
When you get a console, obviously you will need something to play on it. And this is where the gears of Sony’s profit machine begin to turn.
For starters, the Playstation console comes with a store where you can buy almost any game on this planet. Every time a purchase goes through this store, Sony gets a discount.
But games are usually not enough.
For example, you need a “Playstation Plus” subscription ($ 59 / year) if you want to play online. And you need to sign up for “Playstation Now” (additional $ 59 per year) to stream your gaming sessions live.
(For your information: watching other people play games is one thing today.)
In other words, think of Sony as the Apple of the game. Just as Apple uses the iPhone to make most of its money from apps and services, Sony is handing you a console at a loss knowing that it will become one. powerful sales tool for subscriptions and games.
And this business model is killing Sony.
Last week, Sony released results for the July-September period. Exceeding Wall Street’s expectations, its subscription and games soared 40% to an all-time high. Now they generate twice the profit for Sony than any other line of business. Looked:
Sony launches what could be its most successful console of all time
On November 12, Sony releases its next-generation console, Playstation 5 (PS5). And Pre-orders suggest the PS5 may be Sony’s biggest hit since 1994. In the first 12 hours, Sony has recorded more pre-orders than its previous PS4 bestseller sold in 12 weeks.
Record-breaking demand for Sony’s long-awaited console means people will be buying new games in droves. And with an impressive lineup of game titles coming to PS5, Sony is looking very positive for next year.
In its earnings report, Sony said they expected their game sales to increase 26% by next August. If they hit the mark, it would mark one of the most successful early years for the Sony console.
Why Sony might be a better buy than other gaming stocks
I was talking to a 15 year old the other day and asked him about Fortnite.
Fortnite was the sensation of 2018 that glued over 125 million people to their computers. At one point, everyone was talking about the game. Even rapper Drake and celebrity host Ellen gave it a whirl on several occasions.
Do you know what that kid told me? “It’s dead.”
Moral of the story: Gambling fads come and go, and your selection of gaming titles could be a big hit or a big failure. Find out what happened to Activision Blizzard in its best game franchise Call of Duty tumbled in 2018 (Spoiler: -28%)
So why take risks when there is Sony?
It’s the undisputed king of consoles with a solid reputation for hefty royalty income from over 80 game companies including Activision Blizzard, Sega, and Disney’s Lucas Arts. And its PS5 pre-orders indicate that Sony won’t let go of its console supremacy anytime soon.
PS I’m looking at Microsoft (MSFT), which is doing something that could be the next big thing in mobile gaming. I’ll tell you about it next week.
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This is not investment advice.