Sony Corp (ADR) (NYSE:SNE) stock had a rowdy 2017, surging by more than 65% during the year. Investors are excited to see if the SNE stock price can maintain its momentum. After a strong holiday season — one in which its virtual reality headset no doubt sold plenty of units — it wouldn’t be surprising to see a strong quarter.
Sony’s virtual reality headset — PlayStation VR (PSVR) — has quickly become the new staple in the VR community. While the Oculus Rift, owned by Facebook Inc (NASDAQ:FB), and HTC Vive are generally considered higher-quality outfits, they also have a higher price point. While recent price cuts to the Vive and Rift have made them more affordable PC VR options, the PSVR was able to jump out to a quick lead, because, for a long time, it had the best combination of price and quality.
In about a year, Sony sold more than 2 million PSVR headsets, easily outpacing the Vive and Rift. While the two have since slashed their prices, Sony may already have a distinct advantage going forward: its user base. Essentially, all a user needs to run the PSVR is a PlayStation 4 and the company’s movement camera (now included in the PSVR bundle). Before the holidays, Sony announced it eclipsed the 70 million mark for PlayStation 4 sales.
For the Vive and Rift to function correctly, users need a relatively high-end computer complete with strong graphic chips from the likes of Nvidia Corporation (NASDAQ:NVDA) or Advanced Micro Devices, Inc. (NASDAQ:AMD). The cost to buy one of these computers (assembled or built on your own) can easily eclipse $1,000. Even cheaper outfits could still cost double what a PlayStation 4 Pro costs (about $399).
Essentially, here’s what we’re looking at: a complete PSVR setup with a new console will run about $800. For the Vive and Rift, a user may spend that much on just the computer. From a competitive standpoint, the Xbox One from Microsoft Corporation (NASDAQ:MSFT) hasn’t even released a VR headset. While it doesn’t provide sales numbers, an estimate from one year ago pegged Xbox One sales at just 20 million units. Although that figure has surely climbed, there’s little doubt that the PS4 is crushing the Xbox One. When Xbox ultimately launches a VR headset, it will be vastly behind the progress that the PSVR has already made.
What It Means for the SNE Stock Price
Is VR the biggest needle-mover for Sony? Not yet. Some people may not realize how many business segments Sony has, ranging from semiconductors to imaging products, home entertainment systems and its studio division. There are others as well and they are all pretty significant when it comes to Sony’s share of revenue. The company is remarkably diversified.
However, Game & Network Services was its largest unit last quarter, both in sales and operating income. While the PSVR may not be the biggest product from Sony right now, it could be a real game-changer in the future. Two million units are set up on its 70-million-unit network. While all 70 million PlayStation units are not likely in action, for argument’s sake, that’s about a 3% penetration rate. And that’s before we see the holiday numbers.
As the PSVR customer base builds, better content will be on the way, along with improving hardware. From an investor’s standpoint, that will hopefully spur more PSVR sales and again inspire better content. The more money that flows into the VR industry, the better the products become. If PlayStation can lead this wave of innovation, it very well could secure its spot atop the totem pole in what could be a highly lucrative market over the next five to ten years. It has the user base and experience to do so.
Trading SNE Stock
While all that news about VR is fine and dandy, we have a more pressing matter: the SNE stock price.
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The SNE stock price has been on fire, and jumping on now feels like it could be too late. There is a solid short-term trade in the works, though. With a strong economy in the U.S., video game sales were likely strong over the holidays. That could cause the SNE stock price to run into its earnings report on anticipation of good results.
Trading near $46.30, a return to its 52-week high near $48.30 would represent a gain of almost 4.5%. If it can break this level, more gains could follow. With the 50-day moving average trending sharply higher, it’s hard to bet against the SNE stock price at the moment.
Momentum, as measured by the MACD (blue circle), is showing a potentially large positive shift for the bulls.
This could give SNE stock the fuel it needs to retest its highs and possibly go even higher.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
