Nintendo's Stock: Values Keep Rising

[VideoGameAccountant]

Teeqoz said:

VideoGameAccountant said:

Your assessment is misleading. Lets look at the actual numbers.

Gaming and Network Services are #1 in terms of revenue and #2 in terms of operating income. In fact, in terms of both revenue and profit, this divisions blows the others (outside of Financial Services) out of the water. The next closest, home entertainment, only made 58.5 billion with a profit ratio of only 5 percent compared to Gaming 8 percent. When you combine the profit of music, image production and home entertainment, they make up about 180 billion as compared to gamings 135 billion. Its not good when one division makes up 75 percent of three other divisions. This doesn't even speak to the fact that three of these divisions are losing money (with one of them doing better this year if you can beleive that).

Also, the insurance business is based on taking premiums and reinvesting them to build a cushion. The profit it makes will likely go back to buying more investments in case Sony has to pay out a lot (like a missile hitting Tokyo and killing a lot of people, for instance). 

So no, not every single dollar is coming from gaming (no one was saying that anyway). But of all of Sony's divisions, gaming is what is doing well. The problem is this industry is very volitile. Nintendo has stated this is why they have so much cash. Sony had loses in 2013 and 2014 and in those years and insurance didn't save them (in fact, that divisions had higher operating profit in those years). And many of these divisions that were doing well this year had loses in those years. This is what everyone is talking about. The only division worth its weight is gaming as the others, besides maybe music and finance, have been dragging the company down. If the PS5 doesn't nail the landing, Sony could be in very hot water with worse credit than they were at the begining of the Great Recession.

The person I replied to did literally say "all their money solely comes from the PS side of things right now". And I can allow for some exaggeration for dramatic effect, but that statement is far enough from the truth that I called it out.

As for Playstation being a very important segment for Sony, I haven't claimed otherwise, which you would know if you read what I've written in this thread, but Playstation is not close to being the only well performing segment. You have Financials, Music, Semiconductors (which had a bad year in 2016 due to the earthquake in Japan, but is forecast to be back at 100 bn Yen Operating Income this year) all of which are performing well, and some of the other electronic divisions are also doing decently.

Your response was very literal arguing that other divisions make money for Sony so gaming isn't the biggest division. Yes, other divisions make money for Sony and no one is disagreeing with that premise. What you are ignoring is the level of earnings those other divisions are making. Outside of Finance, the other divisions either make very little or are losing money. No one is literaly saying that gaming is the only sector making money; Just that it's bringing in the most revenue and has the best prospects for growth.

But since you mentioed Financal Services as the big earner, let's talk about that. Finance industries (like banking and insurance) function around managing inflows and outflows. In insurance, it's about taking in premiums and paying out claims. The excess is invested to manage liquidity and earnings to ensure the company can meet claims that come due. The issue is that Financial Services can come save the day if something happens to the other businesses. Since Financial Services has to manage their own risk and payout models, they can't use their excess liquidity to bail out gaming if a PS5 goes south. Moreover, the sector, while profitable, isn't seeing huge growth. Earnings seems to be coming from improvements in the market. Japan has an upsidedown population, so the future prospects of life insurance are iffy as the company may have to pay out more than it takes in from those still alive. 

And this means alot for liquidity too. Sony has a lot of their assets in investments, but these may be for the insurance business. Again, that sector is taking the premiums and investing the excess for a rainy day (for a lack of a better term). They can't just liquiditate it to pay for other debt as they may expect more claims in future periods or using it as a cushion in case there are a lot of unexpected claims. Any assessment of Sony's liquidity should include this. This means the liquidity available to the rest of the company may be a lot less than was originally mentioned. Moreover, if Sony runs into problems, its more likely financial services will be spun off into its own thing rather than riding in on a white horse to save the other failing businesses.

And, again, the issue with Sony as a whole is, outside of gaming, there isn't much room for growth. Sony TVs lag. The movie business keeps having flops. Sony doesn't have a competitive phone and businesses like semiconductors have been losing money. Compare this to Nintendo where the company has improving earning, outstanding liquidity, and more opprotunities to make money by licensing their huge array of IPs. 

I am getting off topic a bit, but the problem you have is you assume some businesses making money means that Sony ins't reliant on games for growth and earnings. Financial Services, as I mentioned, should be considered its own thing(I think the historical data breaks it out), a few businesses make some profit and a lot of businesses are lagging and dragging everyone else down. Gaming is mentioned because it makes a lot of money and its an industry Sony is very compatitive in (best selling 8th gen console). This is what everyone means.