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SONY Reportedly Relaunching China Hero Project: Key Takeways

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Sony Group Corporation (SONY - Free Report) is planning to relaunch the China Hero Project program, which was inactive due to pandemic-induced constraints, per a report from Reuters.

Under the program, the company will invest more than 1 million yuan in the development of each game by funding small and big teams with dozens of engineers. The program aims to tap China’s gaming market and compete with the likes of Microsoft.

Quoting the officials of Sony Interactive Entertainment, Reuters added that the company has sold approximately 3.5 million PS4 units and about 670,000 units of PS5 since its launch on May 2021 in China. The company wants to leverage the program and double the sales of PS5 compared to PS4 in the country.

The China Hero Project has backed 17 games, seven of which have hit the market since its initial two batches were released in 2017 and 2019. The company plans to launch more games in the third season of the program compared to the previous two batches, per Reuters.

SONY was successful in incubating the China-made mobile game - Genshin Impact. Microsoft has aggressively courted Chinese game creators with expensive licensing deals due to Sony's success with Genshin Impact, added Reuters.

Sony is a well-known player in the video game space, with its PlayStation being one of the most sought-after gaming consoles in the world. The company’s Games & Network Services segment is one of the largest contributors to the top line. In the last reported quarter, G&NS sales were up 11.7% year over year to ¥720.7 billion. Sales in the segment increased owing to the positive impact of the forex movement

SONY continues to focus on boosting revenues from this segment. In August, the company announced an agreement to acquire Savage Game Studios for an undisclosed amount to further bolster its mobile gaming efforts.

Post the acquisition, Savage Studios will join the newly created PlayStation Studios Mobile division. This division is involved in the development of high-quality, unique mobile games that adhere to PlayStation Studios' high standards while offering customers new gaming experiences.

However, at present, the G&NS segment is struggling with a decline in sales of non-first-party titles, including add-on content. Also, the rising costs for game software development and acquisition-related expenses are concerns..

The company has raised its guidance for the fiscal year ending Mar 31, 2023, from ¥11,500 billion to ¥11,600 billion. The top-line performance is likely to be driven by improvement in GN&S, Music, Pictures, and ET&S segment sales. The company now expects segment revenues to be ¥3,630 billion against the earlier guided figure of ¥3,620 billion . The company expects to sell more than 18 million units of its PlayStation 5 in fiscal 2022.

It currently has a Zacks Rank #3 (Hold). The stock has lost 33.5% in the past year compared with the sub-industry’s fall of 33.6%.

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Some better-ranked stocks from the broader consumer discretionary sector are RCI Hospitality (RICK - Free Report) , Swedish Match and Lululemon Athletica (LULU - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks.

The Zacks Consensus Estimate for RCI Hospitality’s 2022 earnings is pegged at $5.27 per share, up 2.3% in the past 60 days. The long-term earnings growth rate is anticipated to be 12%.

RCI Hospitality’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 39.4%. Shares of RICK have increased 30.1% in the past year.

The Zacks Consensus Estimate for Swedish Match’s 2022 earnings is pegged at 46 cents per share, unchanged in the past 60 days.

Swedish Match’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 8%. Shares of SWMAY have increased 49% in the past year.

The Zacks Consensus Estimate for Lululemon’s 2022 earnings is pegged at $9.89 per share, up 0.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 20%.

Lululemon’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 10.4%. Shares of LULU have decreased 22.4% in the past year.


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