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<\/p>\nIn June 2017, Nintendo Co stock made news when its company market value passed Sony.\u00a0 This was not the first time that had happened.\u00a0 However, it did have a great deal of investors asking us about the relative market value of both Sony and Nintendo.\u00a0 So, when it comes to Sony and Nintendo market value which company is worth more?<\/p>\n
One would think this is a rhetorical question.\u00a0 Nintendo is a pure play video game company.\u00a0 Sony has many divisions and products, including a video game division that is larger than Nintendo\u2019s.\u00a0 In the last year, Sony\u2019s game division alone has earned almost $20 billion in revenue, about 25% of Sony\u2019s overall $80 billion in revenue.\u00a0 In the same period, Nintendo revenue has been about $10 billion.<\/p>\n
Many people will point to the fact that Nintendo is extremely profitable.\u00a0 However, from the period of October 1, 2017 to September 30, 2018, Nintendo\u2019s operating income was about $1.8 billion.\u00a0 Sony\u2019s operating income from its game division was about $2.5 billion.\u00a0 Total operating income across all divisions for Sony was $7.3 billion.<\/p>\n
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In the past year, investors have really started to take a harder look at the two companies and the market values are starting to reflect the more long-term reality. At the end of October, Sony has a market value near $70 billion.\u00a0 Nintendo\u2019s market value is around $37 billion, about half of Sony.<\/p>\n
Long-term we do not see these relative valuations changing that much.\u00a0 Nintendo has been a volatile stock based on their latest hit products.\u00a0 In 2007\/2008, the Nintendo Wii caused Nintendo\u2019s market value to soar past $80 billion.\u00a0 Buy 2013 it had collapsed to about one-sixth of that high.<\/p>\n
In July 2016 Nintendo stock started a comeback with the release of Pok\u00e9mon Go.\u00a0 The fact that this was not a Nintendo product did not deter investors who saw a bright future in Nintendo\u2019s IP on mobile.\u00a0 Nintendo\u2019s stock reached $40 billion, once again more than Sony.<\/p>\n
The past two years have seen a steady rise for both stocks.\u00a0 Sony stock has almost doubled.\u00a0 \u00a0Meanwhile, Nintendo saw a nice rise until the start of 2018.\u00a0 In 2018, Nintendo stock is down over 30%.\u00a0 This is a clear reaction to financial reports showing Sony growing its lead in the video game space.<\/p>\n
Sony has faced an entirely different set of issues.\u00a0 The problem Sony has faced is the perception that it is a schizophrenic company made of many divisions that simply do not work together as a strategic whole.\u00a0 In many ways that is true.\u00a0 However, under the recent leadership of former game division head Kaz Hirai, Sony has trimmed much of the fat.<\/p>\n
Sony stocked peaked around the turn of the century where it was trading at more than twice what it is at today.\u00a0 The stock started a long downward trend that has only changed with the recent success of the PlayStation 4.<\/p>\n
Nintendo is basically a Japanese toy company specializing in video games.\u00a0 Sony is a much more complicated long-term play.\u00a0 Nintendo stock has many speculators hoping to ride the latest hit product to quick riches.\u00a0 In general, Sony does not trade off the most recent product.\u00a0 The PlayStation 4 is a big hit but games only account for about 25% of overall revenue.<\/p>\n
Many investors are really interested in how well each company will do with digital products.\u00a0 Sony is often seen as being weighed down with unprofitable hardware, while Nintendo has hit IPs with the potential to soar in the digital age.<\/p>\n
However, a closer look reveals that both companies have an intriguing blend of hardware and software that drive them to success.\u00a0 DFC Intelligence has always been of the opinion that having a hardware\/software combination is a potential winner.\u00a0 This is why Sony got in the software business and Microsoft got in the hardware business.\u00a0 Amazon and Google are also looking at their own hardware for delivering their services.<\/p>\n
The issue with Nintendo is that they are primarily focused on delivering their own IP to their established audience. On the other hand, Sony is looking to use its PlayStation platform to drive a host of services to its customer base.<\/p>\n
For example, Sony has the PlayStation Vue subscription TV service.\u00a0 The reality is it has nothing to do with PlayStation, as it can work on many third-party devices. \u00a0In the past year, game division network services have delivered $2.6 billion in revenue for Sony.\u00a0 Hardware was about $5 billion, game software $10 billion and other revenue like PSVR and accessories was about $1.5 billion.<\/p>\n
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Of course, Sony is about much more than just video games.\u00a0 Sony is a leader in music. Motion pictures and television, imaging products (cameras and technology found in many smartphones), and of course a wide range of consumer electronics and semi-conductors.\u00a0 However, Sony is no longer a consumer electronics company.\u00a0 The shrinking mobile hardware division (the only one to not show a profit in the past year) is a prime example of how Sony is looking to focus more on digital services.<\/p>\n
A great deal of Nintendo\u2019s value is seen in its ability to bring its IP to mobile devices.\u00a0 However, once again Sony has taken the lead with a mobile game, Fate\/Grand Order. \u00a0Fate\/Grand Order was a huge hit in Japan, where it became one of the handful of billion dollar plus titles.<\/p>\n
The thing about Fate\/Grand Order is it did not even come from Sony\u2019s Game division.\u00a0 It came from the Music division.\u00a0 In other words, Sony\u2019s $20 billion in game revenue does not include Fate\/Grand Order.\u00a0 In the past year, Sony\u2019s Music division has generated nearly a billion in operating income from about $5.5 billion in revenue.<\/p>\n
In the recent released forecasts for the fiscal year ending March 31, 2019, Sony raised its guidance for the Music division revenue by 8% and doubled its forecast for operating income.\u00a0 Part of the reason was \u201cStrong performance of the mobile gaming application Fate\/Grand Order.\u201d\u00a0 On a side note, earlier this year Sony Music paid to $2.3 billion to acquire EMI Music Publishing.<\/p>\n
It is interesting to note how Sony and Nintendo\u2019s stock price have followed similar trends the past 6 years.\u00a0 Nevertheless, a comparison between the two companies is really apple to oranges.\u00a0 Since the Switch launched it has been outsold by the PlayStation 4.\u00a0 Overall Sony is closing in on almost 4 times the number of PS4 units sold.<\/p>\n
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Sony is also not so shabby in the hit game department.\u00a0 Big internal first-party PlayStation 4 games can start to push the 5 to 10 million unit mark.\u00a0 This includes Uncharted 4, Horizon Zero Dawn and this year\u2019s God of War and the recent Spider-Man.\u00a0 In the latest DFC consumer survey, the PlayStation 4 clearly came out on top in terms of consumer perception.<\/p>\n
The real issue with Sony is can they compete with the powerhouses of the digital age.\u00a0 This would include Google, Apple and Amazon.\u00a0 These giants, along with Microsoft, have market values about 10-times Sony\u2019s.\u00a0 From a long-term strategic investment perspective, this is where things get interesting.<\/p>\n
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To see the latest DFC Intelligence forecasts go here<\/a>.<\/p>\n