Before Japanese electronics firm Sony (NYSE:SNE) got its groove back, critics slammed Sony stock as an irrelevant investment. But one chapter of the book remained immensely viable: PlayStation. Even now, with shares comparatively out of the doldrums, SNE depends heavily on its gaming division.
Based on streaming technology, Stadia will advantage Alphabet’s cloud-computing networks to deliver hardware-free gaming. The idea here is to promote open-source entertainment, which would disrupt Sony and console-maker Microsoft (NASDAQ:MSFT).
Unsurprisingly, SNE stock dropped more than 1% in the regular session, and shed nearly 2% during extended hours. Nintendo (OTCMKTS:NTDOY) also felt the heat. As a company levered mostly to consoles, Nintendo depends on a healthy gaming market. With Alphabet pushing its way in, NTDOY lost over 2%.
Over many troubled years, Sony jettisoned several unprofitable businesses. A major reason why Sony stock became a turnaround success was management finally realized what works, and what doesn’t. But the consistent winner throughout was PlayStation. If anything threats this iconic game console, it’s presumably lights out for Sony stock.
Two Scenarios for SNE stock
Given the recent announcement, most folks fall under two camps regarding SNE stock: either Alphabet (or Amazon, or both) eat Sony’s lunch, or they fall short. Both sides of the debate find support from readily available evidence.
First, the bear case probably makes the most sense to passersby. One of the underlying themes of modernization is the de-cluttering effect. Back in the 1990s, owning the latest tech meant myriad wires bulging out of desks and other fixtures. Today, you can enjoy profound computing power condensed into a neat, little rectangle.
Why, then, should our gaming apparatuses be any different? Amazon responded with their streaming-based gaming platform, and now we also have Google’s Stadia.
In addition, gaming transitioned into a serious economic proposition. Put another way, consoles are expensive. Many folks, particularly casual gamers, don’t want to shell out $400 or $500 for yet another machine. This situation becomes more difficult during the holidays when companies prefer to release their flagship products.
But with Stadia, the hardware is in the cloud, eliminating significant costs. Over time, Alphabet may eliminate Sony stock.
However, Sony is deeply entrenched in the gaming world. While the consumer-tech firm has lost ground and credibility in several segments, it features a prized content moat.
Kantan Games’ CEO Serkan Toto wrote to CNBC that “gaming is a very nut to crack.” While I respect Alphabet’s ability to disrupt any tech sector, attacking Sony directly features a low probability of success. After all, the company sold a staggering 91 million-plus PS4s total. This figure utterly dominates Microsoft’s and Nintendo’s tally.
These aren’t two-bit players. So for Alphabet to disrupt SNE stock on gaming’s turf? I just don’t see it.
Google Ironically Benefits Sony Stock
Overall, I wouldn’t hit the panic button on SNE stock. While increased competition detracts nearer-term, the long-term picture remains incredibly viable for Sony.
What casual observers don’t understand is that the gaming equation isn’t binary. Just because a disruptor like Alphabet or Amazon enters the fray doesn’t necessarily spell doom for Sony stock. That’s because the offered platform (i.e., streaming) is contextually inferior to the console.
Earlier this year, I argued that Amazon’s game-streaming venture was neat, but not a disruption. For instance, network latency represents a major problem and frustration for online gamers. But for Amazon to essentially stream the entire hardware via the net? It’s possible but not at all practical.
With Stadia, Google follows the same flawed playbook. But what’s ironic and humorous is that Google went the streaming route to supposedly save gamers money on console purchases. How noble of them. However, they left out an important detail: to actualize their streaming vision requires more funds from gamers.
Most of us probably assume that we have uniform network capabilities. But the reality is that network capacity (and prices) vary wildly across different regions. Therefore, gamers living in “underprivileged” communities must fork over additional money to practically advantage Alphabet’s new platform.
On the flipside, you only have to purchase a console once. This is especially true for casual gaming enthusiasts, the very market at which Google is aiming. Because why would a casual gamer shell out money in perpetuity (via high-speed internet subscriptions) to effectively play Stadia games?
Ultimately, I’m staying the course with Sony stock. Like Amazon, Alphabet introduced an interesting concept. However, it’s no match for SNE and its multiple decades of gaming infrastructure and expertise.
As of this writing, Josh Enomoto was long SNE stock.