I am also a fan of Sony
I believe that Sony Corporation (ADR) (NYSE:SNE) did exceptionally during the E3 conference. The company introduced a lot of new products and features that will be unique to the console. The company has built the purest gaming device and built features around that. The company also included social features into the gaming experience to make it Facebook Inc (NASDAQ:FB) friendly. I am a little concerned of the practical utility of the device though. The Xbox One has the potential of being an alternative computer (or be similar to one.) This could give it an edge when compared to Sony’s PlayStation 4.
On the bright side, Sony Corporation (ADR) (NYSE:SNE) has adopted strong policies that have favored the perception surrounding the company. The lower price of the Sony PlayStation 4 product could be recouped with the sale of video games going forward. However, it would take a lot of video game sales to make up for the lost $1.5 to $2 billion opportunity cost that I have estimated.
I believe that the real upside is in the Sony mobility segment. The recent release of its Sony Xperia Tablet Z could lead to substantial growth opportunities. I estimate that the Sony Xperia Tablet Z to contribute $600 million to $1.2 billion in net income. Sony Corporation (ADR) (NYSE:SNE) also projects that its smartphone segment will grow revenues by 27% for the current fiscal year. Investors could earn substantial returns based on the growth of the Sony mobile segment.
GameStop stock getting a bid underneath it
GameStop Corp. (NYSE:GME) at the time of writing is rallying by 6.02% on the session. This is because of Microsoft Corporation (NASDAQ:MSFT)’s sudden change in policy for used games. Used games represent 48% of the company’s gross profits. However, just because the next-gen console supports used games doesn’t mean that the publishing studios do.
Going forward the number of physical retail games are on the decline. GameStop Corp. (NYSE:GME) could be in significant trouble going forward because the game studios are providing up-front discounts on digital video games. This will result in an immediate decline in the amount of physical discs in circulation. This will also lower the amount of used game sales thus allowing video game studios to earn greater profits over the long-term.
Analysts on a consensus basis anticipate GameStop Corp. (NYSE:GME) to report a 1.3% decline in earnings for the 2013 fiscal year. The company could be met with even greater pressure if game studios offer even greater discounts in the next generation.
Conclusion
Stick with Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE). Don’t ignore the weakness in GameStop Corp. (NYSE:GME)’s business strategy. Just because Microsoft changed its policy on used video games doesn’t mean the video game studios will want to support that.
Alexander Cho has no position in any stocks mentioned. The Motley Fool owns shares of GameStop Corp. (NYSE:GME) and Microsoft Corporation (NASDAQ:MSFT).
The article Microsoft Admits Defeat originally appeared on Fool.com.
Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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