Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE) & Google Inc (GOOG): Who Will Win the Console Wars?

Fundamentals

Sony Corporation (ADR) (NYSE:SNE) gets 10.5% of its revenue from the PS3, so if it can see a significant jump in sales when the PS4 is released, that could provide for some very strong top line growth.

Microsoft makes a lot of revenue from the Xbox 360 hardware, but they also make a lot of profit from Xbox Live subscribers. As of last quarter, Microsoft had 46 million Xbox Live subscribers, which provides for around $3 billion of revenue a year. (Subscriptions can run from $60 for the year to $9.99 for just 1 month.)

Microsoft Corporation (NASDAQ:MSFT) has two big sources of growth riding on the Xbox One, as revenue from the Entertainment and Devices Division increased by 56% year over year with revenue from the Xbox 360 increasing 55% to $641 million. Now $641 million is only 3% of Microsoft’s total revenue, but it still will offer at least 1-2% revenue growth for Microsoft Corporation (NASDAQ:MSFT) over the next few years.

Google Inc (NASDAQ:GOOG) hasn’t released its console yet, so it’s hard to see how it will affect their top and bottom lines, but I would expect expansion in both as they sell the device (probably) at cost or just below cost and make the money back through app sales from its Google Store. The device will probably also have Hulu, Netflix, Amazon Prime, and will offer TV shows, movies, and music as well.

Google trades at a hefty 26.5 PE so these kinds of moves are what helps justify its higher PE because investors know Google Inc (NASDAQ:GOOG) is trying to expand into every market.

Final thoughts

While we still need to see more from Sony and Microsoft about their upcoming launches, whoever wins will see some top line growth, but Microsoft’s Xbox Live is way more profitable than selling hardware. On the other hand the PS4 is a larger chunk of Sony Corporation (ADR) (NYSE:SNE) than the Xbox is of Microsoft Corporation (NASDAQ:MSFT), so if Sony wins they will see a lot more growth than Microsoft would if the Xbox One won.

As of right now Sony Corporation (ADR) (NYSE:SNE) is winning for sure, especially after Microsoft’s PR disaster, but also because Sony is offering the device for $100 less. For Google to get into the console game, it helps justify its higher valuation and could provide some nice growth in the future. We still have to see what they do with it and if it will have any success at all, but it is important to watch.

Callum Turcan owns shares of Microsoft. The Motley Fool recommends Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Google and Microsoft Corporation (NASDAQ:MSFT).

The article Who Will Win the Console Wars? originally appeared on Fool.com.

Callum 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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