Michael Sikand@michaelsikand
GTA VI will hit $1B in pre-orders in its first hour on sale today.
But no one is looking at $SONY, the mispriced money printer on the biggest entertainment product in history.
The trade on game publisher $TTWO has been priced in for a while. The highest street PT is 15% upside. The $GME upside is also light given the game is confirmed to have no discs.
You see the world still looks at $SONY as a low margin console seller with a mature, memory shortage exposed product in PS5. But really, Sony is becoming a digital products business from PSN memberships and in-game purchases, a perfect set up around GTA 6. Despite being a diverse $115B conglomerate, it derives most of its revenue and profits from its video games business.
$SONY is going to print high margin revenue alongside $TTWO, getting a cut of ~70% (console market share) of every game pre-order today, game purchase, and the in game economy purchases that still make $TTWO bags 13 years later.
Sony’s own CFO said this point best:
“The increase in operating income was mainly due to an increase in sales of add-on content and network services, as well as the impact of foreign exchange rates.”
Plus there will be a massive flood in high margin new and re-activated PSN online memberships. Think about how many churned, non active PS5 owners will re-activate here for this game.
You might think is this trade priced in because Sony recently guided for 30% earnings growth for their gaming business this fiscal year.
However, almost of that earnings growth guided is from a large impairment $SONY took on its Bungie deal (Destiny publisher). So the organic growth from this once in a generation gaming catalyst is not baked in. To further support this "not priced in thesis", GTA's history of delays would make building guidance around it a risky play for management.
Now you should know this thesis is not about console sales by the way. Memory shortages have forced Sony to hike PS5 prices, hurting demand. However, I believe the demand for GTA 6 is so asymmetrical, there will be major price inelasticity this holiday season, and PS5 will exceed sales targets anyway. It doesn't really matter though because the margins are very low on the hardware, the key is the console as a wedge into the high margin digital subscription and purchases revenue.
Overall I love the R/R as the business is cheap here at 16x forward, down 20% year to date and down 50% from ATHs. I computed the base case at around $30 (50% upside) which aligns with other analysts like TD and BofA, so the company does look to be genuinley cheap.
IV and expected move on options are super low, so I'm taking an options trade and you won't see Sony show up in any of my @joinautopilot strategies for this reason. Hope is that the market might begin to see what I do around this massive launch as more catalysts build and pre-order data drops.
I've linked my free write up on Sony below or at link in bio.
