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SONY - A Look at Virtual RealitySubmitted by CHARLES CARROLL FINANCIAL PARTNERS on July 7th, 2017
A Look at Virtual Reality
Virtual Reality (VR) is becoming a major theme for internet game players world-wide. Some research firms are extremely optimistic about the long-term prospects of VR. International Global Corporation (IDC) is predicting that VR headsets will grow at a nearly 50% annual rate through 2021. The IDC has also stated that VR headsets and Augmented Reality headsets will grow from just under 10 million units in 2016 to just shy of 100 million units in 2021. The overall valuation of VR will potentially grow from a $1 Billion business today to nearly $8 Billion by 2021.
Why is this important to Charles Carroll clients?
At the Electronic Entertainment Expo held last month in Los Angeles, Sony (Ticker:SNE) announced diverse new VR game titles targeting all sorts of users. The focus by Sony on this market seems to be justified as they have sold nearly 1 million VR headsets in the past six months. The average price of these headsets is $499 giving Sony nearly $500 million in revenue over that period. In selling three times as many headsets as its competitors Facebook Oculus and HTC’s Vibe, Sony has taken a strong foothold in the VR market.
The main problem that Sony is having right now is keeping up with demand. The chart below shows Sony’s dominance in the market as compared to its other rivals.
Other competitors seem to be late to the market. For example, Microsoft will not introduce its VR version until 2018. More importantly, Sony owns a base of loyal Play Station customers that are numbered in the nearly 100 million range, giving Sony an embedded customer base with which to cross-sell their VR package. Even a 5% conversion of its projected Play Station 4 customers will mean that sales will be in the $1.2 Billion range. A rare opportunity to cash in on the move to VR.
One last point that we considered in purchasing Sony was its lead in creating content for the VR enthusiast. Sony leads the industry in creating the programs and games used in conjunction with VR. Sony therefore has the current customer base through its Play Station 4 units, the VR ecosystem which includes the headset and game console to use the VR platform, and the content to bring the VR enthusiast back to its product.
While the VR market expands, we will be watching Sony and its quarterly results in anticipation of increased shareholder value.