On January 28th Robinhood disabled all transactions except for position-closing (selling) for a small set of stocks including Gamestop (GME). This was a new and exciting development in the ongoing saga of how a subreddit called Wallstreetbets (WSB) memed their way into contributing to a short squeeze and profiting from it (or at least the early adopters are likely to profit from it). Freezing stock purchases also generated significant outrage, quickly turning into a narrative of how Big Wallstreet will cheat to avoid losing money to the average Joe. This narrative is simple, appealing, and probably wrong, and the following is an attempt to explain why.
I'm not going to go over the full history here. Others have already done that with plenty of background information. If you want to read the full saga (not necessary to understand the rest of this post, but it is interesting) then check out these links:
The obligatory Vox explainer. A background piece with an interesting explanation of how WSB could profit from this without many of them losing a bunch of money if they can coordinate effectively. A Wallstreetbets thread on GME if you've never visited the subreddit and want to immerse yourself in the full experience of crass GME memes and takes by people who have fully embraced the early 2000's non-PC habit of using intellectual disabilities and sexual orientation as insults.
Anyway, check out those links if you want, or don't, how we got to where we are isn't all that important for explaining why Robinhood shut down certain trades on January 28th.
Disclaimer: I am not an expert on any of this. There's a good chance I've made mistakes in the following explanation. I'm just a guy who wasn't satisfied by the simple narrative and stayed up 4 hours past his bedtime on Thursday night and spent most of his free time since trying to better understand this stuff and writing it up to share what I've learned. If you see anything that you know to be wrong please comment with correct information!
What differentiates this post: There have already been a few other good posts (see links below) on why Robinhood shutting down transactions was not some corrupt conspiracy. But this post is a post for masochists who want to know what's going on in more detail and who want to dig into the technical background and data. If that's you, read on!
Links to other good posts: https://www.reddit.com/neoliberal/comments/l7bo3the_game_stop_situation_is_not_a_conspiracy_an/ https://www.reddit.com/neoliberal/comments/l7bdcv/what_actually_happened_today_hint_there_probably/ https://www.reddit.com/neoliberal/comments/l81tif/why_did_robinhood_stop_allowing_their_customers/ https://www.reddit.com/badeconomics/comments/l7gi70/financial_econ_101_or_link_this_in_bad_reddit/

How a Stock Market Transaction Works

To really understand why the popular narrative about Robinhood is likely to be wrong, we need to better understand how a stock market transaction works. When you buy a stock, you fork over your money and receive in return shares of a stock. The company that provides the user interface or the human that you call up to arrange this transaction is called a broker. That's what Robinhood is. You tell your broker you want to buy X shares of stock Y, you give them the money and they arrange for those shares to be purchased and documented as being owned by you.
But if you're going through Robinhood, and the person that is selling you the shares goes through TD Ameritrade (another broker), Robinhood and TD Ameritrade don't actually talk to each other to complete the transaction. A number of intermediaries may be involved and this can be crazy complicated. Here is a brief explanation of some of the key players:
Broker: The broker interacts with traders. Brokers show traders what the current prices are, takes orders, and handles the traders’ money.
Clearing BrokeEntity/House: These entities handle the logistics of the trade. When a broker interacts with a trader they are basically a conduit for alerting the broader market that someone wants to make a trade of X stock at Y price. The clearing entity is in charge of organizing and documenting things, basically making sure that each side of the transaction transmits the appropriate funds and documenting everything as to who now owns what. Often brokers and clearing entities are combined. Robinhood was originally just a broker (they refer to that as being an "introducing broker") but has since expanded to also do clearing.
Market Maker: A market maker is an entity that has an inventory of certain shares and sells and buys those shares. The purpose of a market maker is to add liquidity. Instead of trying to connect one trader who wants to buy a stock with another trader who wants to sell that stock, brokers can just go to a market maker who they know is holding a stock. The market maker might sell a stock, depleting some of its supply, and then the next instant buy more of that stock to replenish its supply. It's basically a vehicle for faster transactions, and it makes its money by skimming a bit off the bid-ask spread. In other words, it might list a stock for sale at $100, and also list that it's willing to purchase a stock for $99.95. The 5 cent spread on each stock traded goes to the market maker. The reason spreads remain small is people would rather go through the market maker that skims the least off the top. Yay competition!
Exchange: This is like the NASDAQ. The NASDAQ acts as a kind of system enabling the exchange of information and making trades more efficient. This one is confusing to me, but it sounds like an exchange like the NASDAQ brings together market makers and I assume offers them some kind of service and features that makes trading easier. However, it also sounds like market makers don't necessarily have to go through an exchange and can operate without an exchange.
Before we get to the last piece I'll talk about here, keep in mind that all of the above becomes horribly mangled and complicated in reality, because from what I can tell just about any of these entities above can all be under one roof, or subsidiaries of other companies, or any number of different arrangements. The stock market is complicated! This should be your first warning when people try to push simple narratives. Extremely complicated stuff often doesn't fit within a simple story where there are heroes and villains and everyone is out to get the little guy.
The NSCC: NSCC stands for National Securities Clearing Corporation. It is a subsidiary of the DTCC, which stands for the Depository Trust and Clearing Organization. The DTCC is a private company. Each day billions and billions of trades happen. Instead of swapping equities back and forth and all over the place for every single transaction, the NSCC tracks all of these trades, sums them up and at the end of the day says "Company X, you owe company Y $1 billion, company Y, you owe Company X this many shares of each of these securities." The NSCC also handles these transactions, so the money being exchanged by these companies flows through the NSCC. And it does that for every company trading on the stock market. They all go through the NSCC, and the NSCC minimizes the amount of times money and equities have to change hands. There is one private company in the US that tracks and manages all of the trading information to make sure everyone gets paid, everyone gets their shares, and everything happens at the right price. I'm sure the details are complex but I assume brokers that are also clearing entities would be told by the NSCC how much they owe the market makers they exchanged with each day, and vice-versa.
It kind of blew my mind that there's essentially just one main company out there that serves as the central hub of all stock transactions and makes sure the markets work. As you can imagine, resting the entire stock market on one company means that company is going to be heavily regulated to be sure that it can never fail and bring the whole market down with it. We'll get into what regulations are at play soon, but the NSCC is likely the key component in the Robinhood trading freeze.

Claims of Corruption

Okay so we're going to take a brief detour into the reason people are outraged that Robinhood shut down trading. As broken out in this Twitter thread there once was a trader named Gabe Plotkin, he worked at a company called SAC Capital but they got fined for insider trading (not sure how this is relevant to the story other than to get your mind to make the association Plotkin = shady) and he left to start his own company. His new company was called Melvin Capital.
Plotkin's new company did a bunch of shorting, including on Gamestop. His shorts blew up this week with all the Wallstreetbets stuff, putting his firm in bankruptcy danger. But then Melvin got a $3 billion investment from SAC founder Steve Cohen and a Citadel hedge fund manager named Ken Griffin (the tweet thread says bailed out, apparently insinuating that these guys bought a stake in Plotkin's struggling company just to personally help him out, but make of that what you will). Citadel is a market maker. Robinhood uses Citadel as one of its market makers, and Citadel pays Robinhood fees for the trades Robinhood brings them. So Citadel pays Robinhood, Citadel recently bought Melvin capital, which had (and might still have?) a large short position on GME. Therefore the theory is that Citadel stands to lose a lot of money if the short squeeze continues, and since Robinhood gets fees from Citadel there's a big conflict of interest there, the implication being that Robinhood might have restricted purchases of GME in order to drive the price down and prevent Citadel from losing a lot of money via its recent purchase of Melvin.
I didn't fact check any of the above, I'm just presenting the information as I understand it for your knowledge. Make of it what you will, but that's the reason for the outrage. I assume many of the people outraged about it don't even know those details and just think that Robinhood is a big investing company so is probably just trying to save Wallstreet a bunch of money by shutting down trading and stamping out WSB's big short squeeze.
Also, I want to make it clear that this post isn't saying we should completely dismiss the possibility of corruption. It should be fully investigated to make sure nothing shady is happening behind the scenes. The point of this post is that this theory seems a little half-baked, and that there’s a much better theory available.

NSCC Collateral

Back to the NSCC and why it's the key component of all of this. The fate of the US financial market basically rests on its shoulders. So how do we make sure it never goes under? Lots of regulation. The NSCC is required by law to collect a bunch of collateral from the companies it facilitates trades for. That way if the market were to collapse and take down a few of the big market makers or brokers, any outstanding transactions don't completely bring down the NSCC with it, they have some collateral to offset those losses. (Side note: I believe the NSCC also has a means of getting a direct government money infusion in the event of a market collapse so that it can stay afloat and keep processing trades. I don't know the details of this, just wanted to mention it so people rest easier knowing that the sole private company keeping the market afloat isn't only relying on collateral).
You might wonder how much risk there really is for the NSCC. Don't these transactions happen instantaneously through the magic of computers and the internet? Sort of, but not really. While trades execute immediately, they don't actually settle for another two days. This is known as T+2 (In the days of physical stock certificates and paper money it used to take 5 days, or T+5, but computers and internet have sped up the process.). If you buy a stock, you don't officially become the owner until two days later once the NSCC settles the transaction.
Many brokers show the money in your account immediately after a sale, but you may have noticed or heard about delays in making multiple trades, such as not being able to sell a stock, use the proceeds to buy another, and then sell that one. Brokers often allow you to make a trade using unsettled funds for stocks, but they don't let you stack up a bunch of transactions, they require you to wait for settlement to actually occur so that everything is official and so you do a bunch of stuff with money that isn’t really yours yet.
Because these large payments between entities flow through the NSCC it creates a lot of risk for the NSCC. If there were to be a market crash or a sudden bankruptcy of a large trading firm, the NSCC would be exposed to the risk of a collapsed firm missing its payments for trades that have been executed but just not settled yet due to that two day period. I don't know the exact details of how this works, but essentially it sounds like the NSCC would be on the hook for those payments and still have to complete the transaction and pay the firm that the money was supposed to go to. That's why the government requires that companies post collateral each day with the NSCC based on factors like amount of money owed, volatility, and shifts in market price.
After the financial crisis a lot of scrutiny came upon the financial system and Dodd-Frank was passed, which created more oversight and regulation for the financial industry. As part of that, the NSCC was designated as one of eight Systemically Important Financial Market Utilities (SIMFUs) and was required to work under the oversight of the Federal Reserve and the SEC to establish requirements to ensure that it couldn't collapse, such as requiring collateral. The SIMFU designation was something I had no idea existed, so I just wanted to mention that and link to the wikipedia page on it in case anyone else was interested.

Calculating Collateral

The latest rules that the NSCC has created and SEC has approved (under procedure XV here) set forth certain measures to use in calculating how much collateral has to be posted by each firm settling trades with the NSCC. As far as I can tell and based on the original Twitter thread I found this information in (see the end of the post for the credit and link) the collateral is a portion of the outstanding money owed by a firm at the end of the day. For example, if after summing everything up the NSCC determines that Robinhood owes $1 billion to other firms and will receive $0.5 billion from other firms, the collateral will be a portion of the net $0.5 billion they owe. Here's a brief summary of the estimates and steps that go into finding the required collateral, more details on each of these will follow:
1.) Take the highest of two different measures of value-at-risk. Value-at-risk is a measure of how much money you could lose in a certain time period. According to the NSCC proposed rules to the SEC this usually comprises the largest part of the collateral. PDF download of proposed rules is here. 2.) If a single position or stock makes up more than 30 percent of the entire balance owed, the collateral must be a percentage of that balance based on certain historical data, with a minimum of 10% of the size of that position. 3.) A percentage of the difference between the long and short positions in the balance plus the lower balance of the long and short positions multiplied by an even smaller percentage. 4.) The mark-to-market value, which is basically the difference between the initial value of the shares when the trades were executed and any change in market value since then. So if on the first day Robinhood owed $500 billion to the NSCC to be paid out to other companies, but the next day (T+1) the market value of those shares increased by $10 billion my understanding is that Robinhood would have to add $10 billion to their collateral. 5.) Any additional collateral the NSCC demands based on volatility of certain positions. I’m just speculating on this but this seems to be an increase the NSCC can apply if it assesses that there’s widespread exposure to volatility. In other words, the previous four collateral calculations are based on risk exposure from a single firm, but NSCC also would want to look at risk from all of the firms that owe money to the NSCC. Don’t take that as gospel though, the source documents are hard to follow.
The total required value of the collateral is the max of item #1 through #3, plus #4 and #5. So #1 through #3 aren't additive, you just take the worst of them. And there are more than this too, but these are the main five we'll go over now because that's enough complexity and these seem to be the big factors. The others have to do with things like previously unpaid balances, and the ones I have listed here seem to be the biggest factors in calculating required collateral.
To make this less vague I want to give an idea of how these numbers might change as share volatility increases. We'll start with value-at-risk. The value-at-risk essentially looks at the historical volatility and estimates how much you're at risk of losing in a single period. For the purposes of what we're looking at the period is one day. The idea is you normalize the data from a certain time period of daily changes in portfolio price, and then using a normal distribution you see what the 99th percent confidence interval of maximum loss would be. Say Robinhood has a balance owed with the NSCC of $500 billion, they might come up with a number like $50 million, which would mean in a single day they could be around 99% confident that their balance owed wouldn't end up increasing or decreasing by more than $50 million.
But those are fake numbers, so let's estimate some real ones. There are two measures in their rules they use for estimating this. One measure is an evenly weighted volatility function over a period of at least 253 days. That means they look back over the last 253 days or longer and the change in price each day is equally weighted when estimating the mean and standard deviation. The other measure is called an exponentially weighted moving average (EMWA), where they look back a certain number of days but each subsequent day into the past is weighted a little bit less, so that more recent days receive the most weight in your volatility estimate.
Now I want to be clear before I start describing the process that my statistics knowledge is weak, so be aware that I’m following explanations I found online for how to do these things. If anyone notices an error in what I’m doing or in my terminology please correct me. If your stats knowledge is also weak just be aware that this is a case of the blind leading the blind, so don’t assume I know what I’m doing!
My strategy for the value-at-risk was to estimate the value-at-risk of a single share of GME and use that as the basis for estimating the value-at-risk to Robinhood and across the stock market. To estimate these values I downloaded the last 5 years of GME data and ran numbers on the share price at daily close. First I calculated the daily return and applied the natural log to each return. From what I’ve read this is common in the finance world and has some benefits, and it’s generally assumed that the resulting returns are normally distributed. From there for the equivalently weighed method I took the standard deviation on a rolling basis over the past 253 days. According to the NSCC submittal to the SEC, they use a 99% confidence interval to estimate the largest amount that the share price could drop or rise in a single day, based on the data in the historical sample. Or in other words they’re trying to estimate a single-day drop or increase in value that only has a 1% chance of being exceeded.
Once you have the standard deviation you use the assumed normal distribution to find the value-at-risk. The Z score represents the number of standard deviations to the left and right of the mean that results in your confidence interval. As shown in the image below, for a 99% confidence interval the Z score is 1.96. For 99% the Z score is 2.576.
Normal Distribution Showing Z Scores for 95% Confidence Interval
Computing the value-at-risk for the EMWA is a little more complicated. Instead of describing it here follow this link if you want an explanation. But at the end of the day you’re still computing the standard deviation and multiplying it by the Z score, you just compute your standard deviation so that each previous day is weighted as X% of the day after it. I assumed 95% as the decay factor based on the linked article. So today is weighted at 5%, the previous day is 5%*0.95 = 4.75%, the day before that would be 4.51%, and so on.
Below is a plot of results showing the value-at-risk as a percent of the GME share price each day and the GME share price. As you can see, the EMWA generally sticks close to the equivalently weighted method, but fluctuates around it. That fluctuation is because the EMWA is going to be weighing recent price movements a lot higher. So we can see that it makes sense to use the worst case of the EMWA and equivalently weighted value-at-risk, since the EMWA captures recent highs and lows in volatility while the equivalently weighted measures your longer term volatility.
GME Value at Risk as Percent of Share Price Since 2018
You can also see from the chart that what’s happened recently with GME is pretty crazy. The EMWA value-at-risk is close to 80% of the share price! That means if the share price were $100, the 99% confidence interval means it could drop or increase as much as $80 in one day. Previously the EMWA measure had peaked closer to 30% in the last few years, so we’re in pretty uncharted territory for this stock. Below is the same chart but focused on after October 2020 so we can see the recent movement better. As you can see, the equivalently weighted value-at-risk is at about 30%.
GME Value at Risk as Percent of Share Price Since October 2020
That just tells us the value-at-risk for one share. To estimate value at risk for the whole stock market I took the percent value-at-risk times the share price times the volume traded. You can see the result in the image below. I had to show the vertical axes in log-scale because the recent change is just massive. Assuming my method isn’t completely wrong, the stock market as a whole had a value-at-risk peaking at $23 billion on January 27th in just GME stock. That’s some pretty huge volatility.
Dollar Value at Risk for Single and All Shares of GME Since 2018
Here's the same chart but figured on October 2020 onward.
Dollar Value at Risk for Single and All Shares of GME Since October 2020
Robinhood’s value-at-risk is going to be less than that. Their value-at-risk from GME is going to be based on how many shares their users bought and the net Robinhood owed money on each day. So the dollar total for them is going to be quite a bit less than $23 billion. This is difficult to estimate, since from what I can tell brokers don’t really publish their daily volume in each stock. As a back-of-the-envelope, very very rough guess, I’ll start with just roughly assuming 1% of the trades of GME were through Robinhood, and 75% of that was purchases of GME and 25% was selling GME. Doing the math on that would mean that on January 27th Robinhood would be estimated to have $115 million in value-at-risk from just GME alone.
As a second method of estimating I’ll look at what data we do have from Robinhood. In June Robinhood said they had 4.3 million daily average revenue trades (DARTs). That doesn’t really tell us a lot though, because it looks to me like that’s just trades and doesn’t indicate how many shares were traded. That means it’s time to make more arbitrary assumptions! First I’ll assume that average remained the same during the recent craze. I’ll just guess that since Robinhood is billed as for the little guy that the average is 5 shares per trade. And I’ll also assume that in recent days at the height of the craziness that GME accounted for 10% of the trades on Robinhood, and 75% of those were buys. Reasonable? I have no idea, but hopefully. On January 27th the single-share value-at-risk for GME was $250. And total GME shares traded was 93 million. Based on the assumptions, I’m coming up with 2.15 million trades of GME from Robinhood, and a total of $268 million at risk for Robinhood.
So with those two guess-timates it looks like on the worst day, January 27th, the value-at-risk for Robinhood for GME alone could have ranged from somewhere around $100 million to maybe as high as $300 million. And that’s just for GME. The NSCC requires Robinhood to account for value-at-risk of its entire portfolio, all stock purchases net of sales. So the value-at-risk is likely to be even higher than what I’m showing here.
As a final sanity check on this, the NSCC had about $10 billion in its clearing funds as of September 30th, 2020 and about $15 billion as of June 30, 2020. According to our chart, in September and June of 2020 the total value of GME at risk across the entire stock market was about $10 million dollars, or about 0.1 percent of the clearing funds. According to this article, on January 28th the NSCC clearing fund value jumped from $26 billion to $33.5 billion. I’m estimating that GME itself might have accounted for $10 or $20 billion of that. Based on that I’m guessing my estimate of GME’s contribution is probably on the high side. There are other volatile stocks out there besides GME, so for it to be making up over half of the clearing funds seems a bit extreme. That said, we’re at least somewhat in the ballpark, since the clearing fund went from $10-$15 billion in summer and fall to about $25-$30 billion now, so it does seem that GME and other volatile stocks are pushing up the clearing fund by quite a bit.
Bringing that back to our list, what I’ve estimated is that the NSCC might be requiring in the ballpark of $100 to $300 million from Robinhood as collateral for item #1. The rest of the list items I’m not going as in-depth on. For item #2, we have to estimate what the collateral would be if GME was more than 30% of Robinhood’s outstanding portfolio at the end of the day. Let’s say they hit exactly 30%, what would that look like? Let’s use our previous ballpark estimate of 4.35 million trades per day at 5 shares per trade. We’ll also assume GME is around the average price for a stock so we don’t have to weight for stock price. And finally we’ll say GME is at about $300 in share price. Doing that I come up with 6.5 million shares of GME purchased by Robinhood on net, with 10% of that value being $196 million.
I’m going to skip over item #3, I don’t have a good way to estimate that and they don’t define the percentages. We'll just hope items #1 and #2 are larger, which seems like a reasonable assumption.
Where we’re at so far is that we need to take the max of items #1-3. Item #1 was $100 to $300 million, item #2 was $196 million. So we’re still in that $100 to $300 million range.
Item #4 is the mark-to-market adjustment. If we were to stick with our item #2 estimate of 6.5 million shares traded in a day, and pick $100 as how much the stock price jumped in a day (not too far off what it’s been doing recently), then we’d be looking at adding on an additional $650 million in collateral. That’s pretty massive, but also we’re basing that number on the item #2 estimate which assumed that 30% of Robinhood’s trading was GME, which may not be accurate. So the mark-to-market estimate could be a lot lower than that.
Finally, item #5 encompasses several add-ons that NSCC seems to be allowed to demand, which I’m assuming are based on overall risk from all of the entities that owe them money. The rules document I linked previously allows them to require a “special charge” in the event of volatility or liquidity issues, and they can also add something called a market liquidity adjustment which again seems based on volatility and risk.
So where we’re at after all of this is potentially somewhere between $100 million and $950 million in collateral, plus whatever extra the NSCC can demand based on item #5. Likely somewhere toward the middle or higher end of that range, or more. Again, I want to make it clear that I have no idea what I’m talking about and am just trying to get a ballpark estimate. I may be making mistakes. Overall I’m just trying to give an idea of what factors are in play and hopefully give an idea of how much the recent volatility can affect the required collateral.
But honestly this rough estimate doesn’t seem too far off. According to Robinhood their collateral requirement increased 10-fold due to the recent weeks’ events, which they describe in this short (and much too late to stem the outrage) article summarizing why they halted trading on some stocks. And according to this article Robinhood had to draw on up to $1.5 billion in credit to be able to get trading going again. So we’re definitely talking about a huge amount of collateral, and that makes it sound like what I’ve estimated here isn’t that far off all things considered. One important thing to note is that NSCC only handles regular trades from my understanding. There’s another clearing firm called Options Clearing Corporation (OCC) that's used for options. Robinhood likely had additional collateral commitments at OCC for options purchases in addition to what NSCC was requiring on regular GME share purchases. The OCC collateral might be large as well, and it’s possible I could be overestimating the NSCC collateral requirement and that the OCC collateral was more significant.
I did all of my value-at-risk calculations and plotting in this google sheet, feel free to check it out. If you see any errors please let me know.

Where That Leaves Us

Robinhood had to put up a ton of cash as collateral. Just a huge amount. And they weren’t the only ones that had to pause trading due to collateral issues. E-trade, Webull, and several others also restricted trading. And the estimates I’ve provided here, if accurate, serve to quantify to some extent just how large the collateral required is. The alternate theories implying corruption or foul play seem unsupported and implausible when you actually dig in and see what happened with volatility and collateral requirements last week. Again, this should probably all be investigated to make sure there wasn’t any favoritism or alternative motives in the trading halt and increased collateral requirements, but based on all this information it seems that what happened was an unusual but completely legal and ethical situation.
I started looking into this knowing nothing at all about what actually happens when you purchase a stock and now I feel like I have an okay grasp on it. If you read this far I hope it helped you as well.
As a final thought, it worries me how quickly people will jump to assuming malice and corruption in every new turn of events. If the news can be interpreted in a way that makes their perceived enemies look bad people will fully adopt that interpretation without question. This is dangerous and creates outrage and conflict for no reason, so I ask everyone reading this to be an influence in the other direction. Try to avoid taking a strong opinion until you’ve made an effort to better understand all the factors at play and be skeptical when everyone else is jumping to conclusions.

TL;DR

Ha, just kidding! You don't get one of these, this is a complicated issue and trying to reduce it to a simple narrative has caused the country to turn against each other looking for a culprit. Simple narratives based on a shallow understanding of complex issues are bad and are reducing social trust, strive to understand how the world works, it's a fascinating place!

Additional Sources

A lot of credit goes to this Twitter thread, it was the first source I found that explained that there was more going on and provided enough detail to explain why. I basically built on this and expanded it with more background and information. If you're on Twitter go give this person a like and a follow for being a voice of reason and digging into the details.
Just about every concept or entity I discussed in this post has a useful page on Investopedia that you can look at for more information or to verify what I said here. I've probably scanned through about 100 Investopedia pages to try to get a better understanding of these things so I'm not going to flood this post with links, but if you want more information just search for a term on there.

Listen up retards. Do you happen to feel regret because you always think “ohhh if I yoloed my savings on TSLA/AMD/NVDA 🚀 leaps years ago I could be rich by now!!!”
Well if you didn't know already, it doesn’t really matter what happened in the past. Hindsight will always be 20/20. You shouldn’t be harsh on yourself on your past self that your past self wasn’t retarded enough to yolo their savings into AMD/TSLA/.... Your past self doesn’t have the same knowledge that your current self has. It’s fine. If you judged those stocks with the best DD you could do at the time and didn’t think they were worth it, then you did a good job.
If you always think about what you could/should have done in the past, then you don't have the right attitude to play the stock market casino imho.
The single most important thing is to be able to look ahead. There are always plenty of opportunities around. There are thousands of rockets that are still on earth right now. Some may depart this year, others will stay a little longer on earth. The true strength lies in being able to identify those rockets with the knowledge you have right now. And if you still miss most rockets that will take-off this year that's fine, maybe you'll learn, get better and you'll do better next year.
Now, what if I told you there’s a big rocket that’s parked right right here on earth and it has decent chance for take-off this year? Maybe it won't quite reach the moon this year yet, but hey leaving the exosphere should already be a cool milestone.
It has rock-solid fundamentals and will see lots of growth in the following years/decade.
It’s a company that has the fundamental technology to power all the computer vision tech, which is bound to boom this decade.
The company we’re talking about is of course Sony, and it is extremely undervalued right now.
Its P/E is only 14. They have a P/S of 1.65, a PEG of 0.92 (< 2 is already somewhat exceptional for a company/conglomerate of Sony’s size, under 1 is a steal)
Much lower than all of its same-sector peers. This indicates significant undervaluation.
Next up Sony has a P/CF 13.2, ROE of 20% (S&P 500 average is 14% which would already be considered pretty good. 20% ROE is excellent), PEGY of 0.89, P/B of 2.65 and finally Sony has $41.6B in cash on hand. This makes Sony one of the cheapest tech/entertainment/EV/semiconductor growth stocks you will find on the market.
(ROE of 20% + PEGY of 0.89 + PEG of 0.92 means this company is a growth stock based on the numbers alone, but we’ll dig into the actual company and overall outlook in a moment)
I challenge all retards to find a company with similar benchmarks in one of the mentioned sectors, seriously.
Quite frankly doing this DD honestly blew my mind. I kept looking everywhere for reasons why the company could be so undervalued and why they may struggle in the future. Very important to look at all the challenges the company faces to make sure I’m not just doing confirmation bias DD. But all I could find was the opposite. After several weeks and months of working on this DD, I can only conclude that it is overall a very solid company for a bargain price. The new CEO is taking the company in a great direction imho and I'm begin to think he could be Sony's Satya Nadella.
So if you want some easy tendies, maybe consider $SNE while it is still cheap, I’d say.
For the autists out there who care about analyst ratings, SONY ($SNE) currently has 18 BUY ratings, 2 OVERWEIGHT, 4 HOLD and 0 SELL. (= analyst consensus is a STRONG BUY). Very little analysts cover this stock compared to other entertainment/tech companies, so this adds to my assertion that the stock is very much under the radar. Which means you have time to get in before it gets noticed by the larger investing world and before it starts to get a more fair valuation (P/E of around 30 would be more fair for this company I think, but still cheaper than many same sector peers). But, anyway the few analysts who do happen to cover this company are basically all saying it’s an instant-buy at its current price.
Most boomer investors still think big Japanese tech companies are dinosaurs that have long been surpassed by China, South Korea and Apple etc ages ago. Young boomers may think Sony = PlayStation and that it's it. But the truth is that PlayStation, while very important (about 24% of Sony's total revenue last year), is a part of a larger story.
Lots of investors in general associate Sony with the passé Japanese electronics companies from the 80’s and the 90’s. Just like a lot people may think BlackBerry is a struggling phone company.
While Sony may not be the powerhouse in consumer electronics it was in the 80’s and the 90’s, in a lot of ways they are more relevant than ever before. Despite being a well-known brand and being known as the company behind PlayStation, for some reason its stock still seems to be under the radar among both retail and institutional investors. And boy, are they mind-blowingly undervalued. Even if a big part of its business would collapse tomorrow, they would still be slightly undervalued. And I am about to tell you why.
(& btw compared to Japanese tech/entertainment stocks $SNE is still super cheap (Canon, Nikon, Toshiba, Sharp, Panasonic, Square Enix, Capcom, Nintendo, Fujitsu all have P/E ratios ranging from 18 to 77 and none of them have the combination of global clout, fundamentals & growth prospects that Sony has))
2021 Sony as a corparation is not the fucking Sony from 2005-2015’s, just like BlackBerry in 2021 is not the fucking Blackberry from 2012. Just like Garmin in 2021 is not Garmin from 2011. Just like AMD in 2021 is not AMD from 2012.
No, in 2021, Sony is the global leader in imaging technology and people do not fucking realize it. Sony has 50% marketshare in the CMOS image sensor market. There’s a very good chance the smartphone in your pocket has Sony image sensors (unless it’s a Samsung phone). Sony image sensors are powering a big part of today's vision/camera technology. And they will power even more of tomorrow's computer vision tech.
In 2021, Sony is a behemoth in video games, music, anime, movies and TV show production. Sony is present in every segment of entertainment. Sony’s entertainment branches have been doing great business over the past 5 years, especially music and PlayStation. Additionally, Sony Pictures has completely turned around.
In 2021, Sony is the world’s biggest music publisher (and second biggest music company overall). Music streaming has been a boon for Sony Music and will continue to be.
In 2021, Sony is among the biggest mobile gaming companies in the world (yes, you read that right). And it’s mainly thanks to one game (Fate/Grand Order) that nets them over $1B revenue each year. One of the biggest mobile gaming companies + arguably biggest gaming brand in the world (PlayStation).
In 2021, Sony is an EV company. They surprised the world when they revealed their “Vision-S” at CES 2020. At the reception was fantastic. It is seriously one of the best looking EV’s. They already sell sensors to Toyota. Sony will most like sell the Vision-S's tech to other car manufacturers (sensors for driving assistence / autonomous driving, LiDAR tech, infotainment system).
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40 sensors in the Sony Vision-S
Considering the overwhelmingly good reception of the Vision-S so far, I suspect the Vision-S could be another catalyst that will put Sony as a company on the radar of investors and consumers.
We've seen insane investment hype for anything even remotely related to EV over the past year. We've seen a company that barely had a few EV design concepts (oh wait, they had a gravity-powered truck though) even get a $30B market cap at some point lmao.
But somehow a profitable company ($SNE) that has an EV that you can actually drive, doesn't even have a fair valuation?
In 2020’s Sony’s brand value is at their highest point since 12 years. In 2021, it is projected to be a its highest point since 2001 assuming same growth as average yearly growth from 2015 to 2020. Keep in mind brand valuation is a bit bullshitty as there’s no standardization to compare brands from different sectors, let alone non-consumer-facing brands with consumer-facing brands. But one thing we can note is that Sony both as B2C brand and as a B2B company is on a big upwards trend.
https://interbrand.com/best-global-brands/sony/
https://careers.uw.edu/blog/2020/03/17/these-are-the-10-biggest-video-game-companies-in-north-america-shared-article-from-zippia/
In 2021, Sony is an entertainment behemoth. They have grown their entertainment branches by a huge amount over the past 5 to 10 years (they made some big acquisitions in the music space especially and they’re now also all-in in anime). I don’t think people realize how big Sony is as an entertainment company. I dug up the numbers and as of Q3 2020, PlayStation is the second biggest video game company in the world (Tencent is #1) in revenue (I suspect Sony might dethrone Tencent after Sony’s FY Q3 2020 is released). But Sony already comes very close to Tencent especially if you add Fate/Grand Order (which is under Sony Music and not under PlayStation) under PlayStation.
There’s no single other company that has this unique combination of a dominant/important position in all entertainment segments. (video games + music + movies + TV series + anime + TV networks). I guess Tencent maybe?
In 2021, Sony has amazing momentum in the camera space. If you’re familiar with the enthusiast photography space, you should know this. Basically, the market is slowly shifting from SLR to mirrorless cameras. This is because mirrorless cameras tend to smallelighter, have faster AF, better low light performance, better battery life and better video performance. Sony is the company that has been specializing in the development for mirrorless cameras for over a decade while Canon’s bread and butter has always been SLR cameras. Sony is in the lead when it comes to mirrorless cameras and that’s where the market is shifting towards. Because the advantages of mirrorless have become more and more apparent and Sony’s cameras have become technically superior, Sony has gained quite a bit of market share over Canon and Nikon in the last few years. In 2019, Sony overtook Nikon as the #2 camera manufacturer. Sony is in an upwards trend here. (they have the ambition to become the world’s #1 camera brand) Sony also has very good marketing for their cameras. (Sony has a lot of YouTubers / influencers / brand ambassadors for their cameras despite being a smaller brand than Canon)
(just search on YouTube and/or Google “switching to Sony from Canon” just to give you an idea that they do have amazing brand momentum in the camera space. You won’t get as many hits for the opposite)
A huge portion of Sony’s profit comes from image sensors in addition to music and video games. This is in addition to their highly profitable financial holdings division & their more moderately profitable electronics division.
Sony’s electronics division, unlike other Japanese brands, has shown great resilience against the very strong competition from China & South Korea. They have been able to maintain their position in the audio space and as of 2020 are still the global market leader in high-end TV’s (a position they have been holding for decades) and it seems they will continue to be able to maintain that.
But seriously this company is dirt-cheap compared to any of its peers in any segment and there’s various huge growth prospects for Sony:

• CMOS image sensors & Sony’s overall imaging prowess will boom due to increased demand from automotive sector, security & surveillance industry, manufacturing industry, medical sector and finally from the aerospace & defence industry. On the longer term, image sensors will continue to boom due to increased demand for computer vision & AI + robotics. And for consumer electronics demand will remain very high obviously.
• Sony is aiming for 60% market share in the CMOS image sensor market by 2026. Biggest threat here is Samsung here who have recently started to aggressively invest in image sensors and are challenging Sony. Sony has technological lead + higher production capacity (and Sony will soon open a new plant in Nagasaki), so Sony should be able to hold off Samsung.
• The iPhone 12 Pro has 3 cameras + a lidar sensor. Apple now buys 3 image sensors (from Sony) + LiDAR sensor (from Sony) per iPhone 12 Pro they manufacture. Remember the iPhone X and iPhone XS? That one had “only” 2 rear cameras (with image sensos from Sony of course). Basically, Sony will be selling exponentially more image sensors as more smartphones get equipped with more and more cameras.
• Now think about how many image sensors Sony can sell to Apple if the iPhone 13 will have 5 cameras + LiDAR sensor (I mean the number of cameras on smartphones certainly won’t decrease)
• Gaming (PS5 hype, PSN game sales are booming, add-on content is booming, PS+ subscribers count is booming and finally PSNow & first-party games sales are trending upwards as well). Very consistent year-on-year profit & revenue growth here. They have a history of beating earnings expectations here. The number of PS+ subscribers went from 4M to 48M in just 6-7 years. Investors love to hype up recurring revenue and subscription services such as Disney+ and Netflix. Let’s apply the same logic to PS+? PS+ already has more subscribers than HBO Max in the USA.
• PlayStation (video games in general) has not even scratched the fucking surface. Most people who play video games now are millennials and kids. Do you think those millennials will stop playing video games when they grow older? No, of course not. Boomers today also still watch movies and TV. Those millennials have kids and those kids are now also playing video games. The kids of those kids will also play video games etc. Basically the total addressable audience for video games will by HUGE by the end of the decade (and the decades after that) because video games will have penetrated all age ranges of the population. Gaming is the fastest growing segment of the whole entertainment business. By a large margin. PlayStation is obviously in a great position here as you can guess from the PS5 hype, but more importantly imho, the growth of PS+ subscribers (currently a bit under 50 million) and PSN users (>100 million MAU) over the past 5 years shows that PlayStation is primed to profit from the audience growth.
• On top of that you have huge video game growth in the China where Sony & PlayStation is already much better established than Xbox (but still super small compared to mobile games and PC gaming in China). Within the console market, Xbox only competes with PlayStation in North America. In the rest of the world, PlayStation has an enormous lead over Xbox. Xbox is simply a lesser known and lesser desirable brand in the rest of the world
• Anime streaming (basically they have a monopoly already + vertical integration, it might still be somewhat niche right now, but it will be big within 5 years. Acquiring Crunchyroll was a very good move)
• Music streaming (no, they don’t have a music streaming service, but as music streaming grows, Sony Music also gets a piece of the growing pie through licensing/royalties, and they also still have a little 2.8% stake in Spotify)
• Apple, Amazon, Netflix, AT&T and Disney are currently battling it out in the streaming wars. When there’s a war you have little chances of winning, you shouldn’t be the one waging the war. You should be the one selling the ammo. Basically Sony Pictures (tv shows + movies) is in that position. Sony Pictures can negotiate good prices for their content because Apple, Amazon, Netflix, AT&T are thirsty for content and they all want their own exclusive content. Sony Pictures does not need to prop up their own streaming service just like Sony Music doesn’t need their own music streaming service when they can just license out their content and turn a profit. There will always be demand for TV & movies content, so Sony Pictures is well positioned is as an independent content provider. And while Apple, Amazon, Netflix, AT&T and Disney are battling it out on the forefront, Sony is quietly building their anime empire in the background. Genius business move from Sony here, seriously. They now have anime production & distribution.
• Netflix has 200M subscribers and they currently have a 250M market cap. Think about what Sony will have in 5 years? >30M Crunchyroll subscribers (assuming all anime will be consolidated into Crunhyroll) & >100M PS+ & PSNow subscribers? Anime and gaming is growing faster than movies and TV shows. (9% CAGR for anime, 12% CAGR for gaming vs. 5% CAGR for the whole movies & TV show entertainment segment which includes PVOD, SVOD, box office, TV etc etc). And gaming as a whole is MUCH bigger than SVOD streaming. Netflix gets 99% of their revenue & profit through subscriptions. For the whole Sony Group Corporation, their subscription services (games + anime) it’s currently only 4.5% of their total revenue. And somehow Sony currently has a meagre $128B market cap?
• PlayStation alone is bigger than Netflix in terms of operating profit. PlayStation has a MUCH higher profit margin than Netflix. For Q3 2020 Netflix posted $790M operating profit and PlayStation posted $988M operating profit. Revenue was was $6.44B for Netflix vs. $4.77B for PlayStation. (and btw Sony’s mobile gaming revenue (~$1B / year) is under Sony Music, it is not even in those PlayStation numbers!!!)
• Think about it. PlayStation alone posts bigger operating profit than Netflix (yes revenue is bit smaller, but it’s the operating profit that matters most). And gaming is growing faster than movies. And PlayStation is about 24% of Sony’s total revenue. And yet Netflix has a market cap that is equal to the double of Sony's market cap? Basically If you apply Netflix’ valuation to PlayStation then PlayStation alone should have a bigger market cap than Netflix' market cap.

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PS+ growth and software digital ratio growth
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• Sony Vision-S & autonomous driving tech (selling sensors + infotainment system to other car manufacturers). Sony surprised everyone when they revealed their Sony Vision-S electric vehicle last year at CES 2020 (in-house design and made in cooperation with Magna Steyr). And it’s currently being tested on public roads. Over the past year we have seen absurdly big investment hype into anything even remotely related to EV’s (including a few questionable companies). We’ve even seen an EV company with a gravity-powered truck get a $30B market cap in June last year. Meanwhile Sony, out of nowhere, revealed what is arguably (subjectively) one of the best looking EV’s. It got very positive reception at CES 2020. An EV that you can actually drive. But somehow their stock is still dirt-cheap based on their current fundamentals alone? Yet some companies that had pretty much nothing but some EV design concepts got insane valuations purely due to hype?
• LTE chips for IoT & Industry 4.0 (Altair Semiconductors)
• Cross-media IP (The Last of Us show on HBO, Uncharted movie etc). Huge unrealized potential synergy here (it’s about to change). We have seen that it can turn out super well when you look at The Witcher, Sonic the Hedgehog and Detective Pikachu. When The Witcher released on Netflix, sales of The Witcher 3 significantly increased again. Imagine the same thing, but with Sony IP’s. Sony Pictures is currently working on 7 video game IP based TV shows and 3 movies. We know The Last of Us tv series is currently in production for HBO. And then the Uncharted is currently in post-production and scheduled to be released in July this year currently. If Uncharted turns out to be successful, it will mark a big, new milestone for Sony as an entertainment company imho.
• Aniplex (Sony Music Entertainment Japan subsidiary for anime production, distribution & mobile games) had a fantastic year in 2020. (more on this later) There is a lot of room for mobile games growth with Aniplex. Thanks to Aniplex, Sony might beat their earnings forecast.
• Drones. DJI just got put on Entity List in USA and Sony started developing drones for prosumer / professional a few years ago. Big opportunity for Sony here to take a bit from DJI’s dominance. It only makes sense for Sony to enter the drone market targeting the professional & prosumer video market, considering Sony’s established position in the professional audio/video/photography space
• Currently Sony also has several ventures & investments in AI & robotics
• Over the past decade, Sony has also carefully expanded into medical equipment tech & biotechnology. Worth noting that Sony also has an important 33% stake in M3 inc (a medical services through-the-internet company with a market cap of $65.5B) (= just their stake in M3 Inc is worth $22B alone, remember Sony, with their large, diversified revenue streams & assets only has a market cap of $128B?)
• Sony Pictures has a great upcoming movie slate (MCU Spider-Man, Uncharted, Ghostbusters: Afterlife, Venom 2, Morbius, Spider-Verse sequel, Hotel Transylvania 4, Peter Rabbit 2, Vivo, The Nightingale). They will profit from the theatre reopening and covid recovery. They may even become more favourable among movie theatre chains because they won’t release their movies on the same day on streaming services like Warner (and yeah movie theatres are here to stay, at least for a while imho)
• All the above comes on top of established, mature markets (Financial Holdings & Electronic Products)
• Oh yeah, btw though TV’s are a cyclical and mature market and are not that important for Sony Group Corporation’s bottomline*, Sony TV’s will continue to do well for the following successive years: o 2020: continued pandemic boost

1. 2020-2021: PS5 / Xbox Series X/S
2. 2021 Summer Olympics (tv sales ALWAYS spike during the olympics) (& the effect is more pronounced for high-end TV’s, = good for Sony because Sony’s market share is concentrated in the high-end range (they are market leader in the high-end range)
3. 2022 FIFA world cup (exact same thing as for the olympics)
4. You could say it’s already priced in, but the stock is already ridiculously undervalued so idk…

You would think this company somehow has a bad outlook, but that could not be further from the true, let me explain and go over some of the different divisions and explain why they will moon:
Sony Entertainment
While Netflix, Disney, AT&T, Amazon, and Apple are waging the great streaming war, Sony has been quietly building its anime streaming empire over the past years.

• Sony recently acquired Crunchyroll for $1.175B (it is a great deal for Sony imho and will immediately be more valuable under Sony. Considering the growing appetite for anime I honestly do not even understand why AT&T sold it, they could have integrated it with their other streaming service (HBO Max) but ok)
• With Crunchyroll Sony now has the following anime empire:
• Aniplex (anime production & distribution, subsidiary of Sony Music Entertainment Japan) F
• Funimation
• Manga Entertainment UK (production, licensing, and distribution, UK)
• Wakanam (licensing and distribution in Europe)
• AnimeLab (licensing and distribution in Australia & New Zealand)
• Crunchyroll (3 million paying subcribers, 90 million registered users and 50 million social media followers)

* Why anime matters:
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Anime growth
“The global size is expected to reach USD 36.26 billion by 2025, registering a CAGR of 8.8% over the forecast period, according to a study conducted by Grand View Research, Inc. Growing popularity and sales of Japanese anime content across the globe apart from Japan is driving the growth”
(tl;dr anime 🚀🚀🚀🚀🚀, Sony is all in on anime and they have pretty much no competition)
Anime is the fastest growing subsegment of movies/video entertainment worldwide.

• Sony also has a partnership with Bilibili for anime distribution in China:

https://www.chinadaily.com.cn/a/201903/26/WS5c990d93a3104842260b2737.html

• Bilibili already partnered with Sony Music Entertainment Japan to bring Aniplex’s hugely successful Aniplex’s Fate/Grand Order mobile game in China.
• Sony acquired a 5% stake in Bilibili for $400M in March 2020 (that 5% stake is now already worth $2.33B at Bilibili’s current share price ($BILI) and imho $BILI still has lots of upside potential considering it is the de facto video creation/sharing/viewing à la YouTube/Twitch for GenZ in China)

https://ir.bilibili.com/news-releases/news-release-details/bilibili-announces-equity-investment-sony
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Sony Music Entertainment Japan
Aniplex

• Sony Music (mobile games) generated $400M revenue from its mobile games in Q2 FY2020, published through Aniplex (Sony Music Entertainment Japan, “SMEJ”) subsidiary
• They are the publisher of Fate/Grand Order, one of the most profitable mobile video games of the past 5 years (has generated $4B in revenue (!!) by the end of 2019 and is still as popular as ever). Fate/Grand order is the 7th most profitable mobile game in revenue worldwide as of 2020 (!)

Fate/Grand Order #9 game by revenue last year as of Q3 2020
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• Aniplex launched Disney: Twisted Wonderland in March this year. In Q3, it was the #10 most downloaded mobile game in Japan. (Aniplex now has two top ten games in Japan)
• Fate/Grand Order was the #2 most tweeted game in 2020 and #3 was Disney: Twisted Wonderland. You can see that Aniplex has two hugely successful mobile games. (we are talking close to $1B of revenue a year here). It is the #2 game in Japan by total revenue from Q1 2016 to Q3 2020 and the #9 game in worldwide revenue from Q1 2020 to Q3 2020.

Aniplex has two very popular mobile games

• SMEJ earns about > $1B from mobile games in revenue from mobile games and there is still a lot of future growth potential here considering Japan’s mobile game market grew a whopping 32% yoy from Q3 2019 to Q3 2020.
• Aniplex recently co-distrubuted the movie Demon Slayer: Mugen Train in Japan in October 2020. It became the highest grossing film of all time in Japan with a total gross box office revenue of $380M. In the middle of a pandemic. It still needs to release in South Korea, China and USA where it will most likely do great as well.

Sony Interactive Entertainment (SIE) (Game & Netwerk Services business unit):
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• We all know 2020 was a huge year for video games with the stay-at-home pandemic boost. The whole video game sector brought in $180B of revenue in 2020, a whopping 20% increase yoy.
• But 2020 will not be just a one-off temporary exceptional year for video games. The video game market has a CAGR of 13% which means it will be worth $291B in 2027. Video games is by far the segment with the highest growth rate in the whole entertainment industry.

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US video game market growth (worldwide growth has a 13% CAGR)
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PlayStation revenue and operating profit growth
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• PlayStation obviously has a huge piece of this pie and over the past years has seen consistent yoy revenue and profit growth. Think about it, for every FIFA/Call of Duty/Assassin’s Creed sold on PS4/PS5, Sony gets a 30% cut. There have been sold a billion PS4 games so far.
• 5 years ago 20 to 30% of PS4 games were purchased digitally. Flashforward to 2020 and it’s 60-75% and the digital ratio looks set to still increase a bit. This means higher profit margin for game publishers and for Sony at the expense of retailers
• SIE has seen huge success in its first-party games over the past 5 years. Spider-Man, God of War, Horizon: Zero Dawn, The Last of Us Part 2, Uncharted 4, Ghost of Tsushima, Days Gone, Ratchet & Clank have all been huge successes. This is really big and represents a big change compared to the previous generations where Sony never really hit it big as a games publisher even though most of their games were considered quality games.
• SIE is now not only a powerful platform holdeprovider, but also a very successful games publisher with popular IP’s (Uncharted, God of War, The Last of Us, Horizon, Ghost of Tsushima, Ratchet & Clank). This is an enormous asset, because firstly it increases the chances of success for cross-media opportunities (Sony Pictures can make TV shows and movies out of it to expand the popularity of those IP’s even more). And secondly, it is an obvious selling point for PS5. The more popular and bigger their exclusive content, the more they can draw people to their platform/service. This should increases PS5 total marketshare over its competitor.
• The hype for God of War: Ragnarok will be absolutely through the roof. Hype for Horizon: Forbidden West is also very good already (10 million yt views, 273K likes which is very good). Gran Turismo 7 and Ratchet & Clank will also do very well in 2021. (I suspect that GoW oand Horizon might be delayed to 2022)
• PS5 reception has been extremely good. Demand is through the roof as well all know. The only problem is that they cannot quite capitalize on the demand due to lack of supply, but overall, it is a very good thing that demand is very high, and that reception has been very positive. The challenge will primarily supply and production-related for the following 6 months and to be able to maintain brand momentum. Hopefully, they won’t push disappointed/inpatient customers to competitors.
• Considering there’s backwards compatibility from PS4 to PS5, users will want all their PSN content to transition with them as well, so I expect them to lose very little marketshare to Xbox. Also, I do not know if Americans realize it, but Xbox is not nearly as big as PlayStation in the rest of the world as it is in the USA. PlayStation just has global brand power that Xbox just doesn’t have, so Xbox isn’t much of threat at all I’d say. Where I live, in Belgium, In Europe everyone is talking about the PS5, nobody really seems to care about Xbox Series S/X that much. Comparing PlayStation to Xbox in terms of mindshare is like comparing Apple to Motorola (not meant to be a diss to Motorola, I have a Motorola phone myself, just saying that Xbox has significantly less mindshare / brand power in Europe).
• SIE is likely working on PSVR 2, this could be big.
• Sony has a small stake in Epic Games (1.4%) and they have a good business relationship with them, so this might also make them open to release first-party games on Epic Games Store after exclusivity period on PS5.
• Remember the Travis Scott concert in Fortnite? I believe that was one of the reasons why Sony invested in Epic Games. It serves as an example how music can sometimes converge with video games, and this can play to Sony’s strengths.
• PlayStation also has way superior presence in Asia compared to Xbox. Have been expanding into China as well. Another great opportunity for revenue growth.
• PS+ subscribers grew from 5.7 million by the end of 2013 to 46 million by October 30th, 2020. This is an average growth rate of 28% over the past 5 years. Considering most of the growth was early on, it will slow down, but I predict that they will have about 70 million PS+ subscribers by the end of 2023. This is huge and represents a stable, recurring source of income. Investors who keep hyping Netflix/Disney+ will love this, but it seems they have yet to discover $SNE.
• There is a reason why Amazon, Google, Nvidia have been aggressively investing in video games & games streaming. They know the business is huge and is about to get even bigger. But considering the established, loyal PlayStation userbase, the established global brand of PlayStation and the exclusive games, PlayStation should be able to easily standoff competition from Amazon, Google and Nvidia (GeForce Now) in the next few years. So far, Amazon’s venture into game development, publishing & streaming has completely failed. Stadia and GeForceNow seem to have a bit more success, but still relatively niche. Therefore, I think PlayStation is well-positioned to remain one of the leaders in the industry for the following decade.

I'll get to the other divisions later, I figured this is a good first step.
But so far the tl;dr
Image sensors: 🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀
IoT/Industry 4.0 chipsets: 🚀🚀🚀🚀🚀🚀🚀
PS5/PSN/PS+: 🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀
Online medical services (M3 inc.): 🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀
Anime: 🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀
Fate/Grand Order: 🚀🚀🚀🚀🚀
Demon Slayer: Mugen Train 🚀🚀🚀🚀🚀
Sony Music / music streaming (the performance of Sony Music’s in Sony’s business is seriously understated. The numbers speak for themselves): 🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀
Sony Electronics 🚀
Sony Financial Holdings (very stable & profitable business, even managed to grow slightly during pandemic when most insurance companies performed more poorly): 🚀🚀🚀
Still have to cover Sony Pictures, but their upcoming movie slate looks pretty good honestly (Spider-Man sequel, Venom: Let There Be Darkness, Ghostbusters: Afterlife, Uncharted, Morbius, Hotel Transylvania 4 so that's worth one rocket as well imho 🚀
tl;dr of tl;dr:
🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀
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Disclaimer: I am not a financial advisor. I am an idiot that's trying to understand why $SNE stock is so cheap.
Positions: SNE 105C 21st January 22