Sony To Resume Downtrend On Declining Revenue Concerns

The shares of Sony (SNE) had risen by about 20% to $23.62 in less than two months. The uptrend was mainly due to an impressive fiscal 2015 third-quarter earnings. However, a close look at the third quarter results would enable us to understand that Sony is yet to improve in several segments before the market sentiment turns bullish.

The earnings per share increased to 21.3% to Y93.33, from Y76.96 in the corresponding period last year. However, the company’s revenue was more or less flat compared to the prior year. The fiscal 2015 third-quarter revenue was Y2.58 trillion, compared to Y2.566 trillion in the third-quarter of fiscal 2014.

Segment wise, during the third-quarter of fiscal 2015, the mobile communications division recorded a 14.7% decrease in revenue to Y384.5 billion, from Y450.9 billion in the prior year similar period. The smart phone sales decreased considerably. Similarly, in the third-quarter, the home entertainment and sound division registered a 4.3% decrease in sales to Y402 billion. The segment saw a decrease in the unit sales of LCD televisions and home audio devices.

wochit Business: 1 Feb 2016

The most important segment, which saw a rise in the revenue, was the game and network services segment. In the third quarter of fiscal 2015, this division recorded a 10.5% increase in the revenue to $Y587.1 billion, from Y531.5 billion in the third-quarter of 2014. During the third quarter of 2015, revenue from the pictures segment increased 26.9% to Y262.1 billion, from Y206.6 billion in the similar period of 2014.

For the fiscal 2015, Sony anticipates a decrease in the sales and operating revenue to Y7.9 trillion, from Y8.22 trillion in the fiscal 2014. It can be easily understood that the hardware division impacts negatively on Sony, while the production and entertainment division contributes positively. The company’s revenue and profitability are heavily dependent on the sales of PS4, which is currently the leader in the market. The release of exclusive gaming consoles such as No Man’s Sky, Uncharted 4 and Street Fighter V is expected to have a positive effect on the Sony’s earnings only in the second half of 2016. Unless the company starts focusing on smaller products, the revenue would continue to depend on gaming and movie divisions. Thus, fundamentally, the stock of Sony would remain range bound with bearish bias in the coming weeks.

Technically, the chart of Sony indicates heavy resistance at 25.70. The price chart also indicates that the stock has minor support at 22.20 levels. The price continues to move within the declining channel. Thus, a trader can expect the stock to reverse after touching the resistance at 25.70. A breakdown below the 22 levels will take the stock to 18 or even lower.

So, considering the negligible risk of price rise, a trader can enter a one touch binary put option trade, when the price nears the 25 levels. A strike price of 22 would increase the chance of success in the trade. An expiry date in the second or third week of April should be selected by the trader.

Charlie Harrison

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