Research from Drawbridge Research, Drawbridge Research

Drawbridge Research

Research from Drawbridge Research

The team at Drawbridge Research believes that to take advantage of market mispricing a first principles understanding must be obtained on what a company fundamentally does, the purpose that gives that company a reason to exist, and how that company executes on serving its purpose and function.

Once a first principles understanding is obtained, we believe it becomes possible to discern real world fact from market fiction. A fundamental understanding, coupled with this separation, allows for an evaluation of a company’s inherent value that is not biased by market sentiment.

This approach requires significant qualitative research coupled with a detailed understanding of company financial accounts to understand what attributes drive and protect profitability. These two parts of Drawbridge’s research approach are not viewed separately by the research team but instead as two interdependent parts of a broad, exhaustive, and complete investment research process.

Price is equally paramount. This means that a company must be priced at a level where it offers significant growth in value, as our goal is to achieve outsized returns, not to simply collect quality companies. In addition to the upside potential, a company must be attractively priced enough to ensure the preservation of capital in the case our thesis turns out to be wrong.

Equity Bottom-Up

This is the third and final part of our three part series on Sony Group. In this note we look at Sony’s Gaming and Network Services (G&amp;NS) segment and the fundamental pillars supporting its profitability. By doing this we uncover that the business is dependent on the technical competitiveness and the catalogue of game titles available on PlayStation, Sony’s console platform. We look at the primary known threat to the business’s profitability, which is cloud gaming. Breaking down how cloud gaming is technically achieved we are able to compare the technical limitations and advantages of both console based and cloud based gaming. Through this we can determine whether cloud gaming posses a disruptive threat as a substitute to Sony’s entrenched console platform, or if instead cloud gaming can be viewed as a complimentary service supporting further growth. In regard to the PlayStation business, we also analyse the current heightened level of deal activity in the game development space. Consolidation amongst game developers and increased ownership by the platform operators is seen as being indicative of a maturing gaming industry. Given this we look at Sony’s level of investment in gaming software to ascertain whether the company’s consistently strong performance over the past 2 decades in the home console market has allowed the company to gain a critical mass of IP and third party titles on its platform to continue attracting gamers.Final comments outline how the company’s subsidiaries are effectively collaborating to create value no other company can, and why this second layer of value creation is being missed. The research note then concludes the series by valuing Sony via a sum of the parts valuation and valuing the financial business at the implied valuation Sony paid in early 2020.

This is the third and final part of our three part series on Sony Group. In this note we look at Sony’s Gaming and Network Services (G&amp;NS) segment and the fundamental pillars supporting its profitability. By doing this we uncover that the business is dependent on the technical competitiveness and the catalogue of game titles available on PlayStation, Sony’s console platform. We look at the primary known threat to the business’s profitability, which is cloud gaming. Breaking down how cloud gaming is technically achieved we are able to compare the technical limitations and advantages of both console based and cloud based gaming. Through this we can determine whether cloud gaming posses a disruptive threat as a substitute to Sony’s entrenched console platform, or if instead cloud gaming can be viewed as a complimentary service supporting further growth. In regard to the PlayStation business, we also analyse the current heightened level of deal activity in the game development space. Consolidation amongst game developers and increased ownership by the platform operators is seen as being indicative of a maturing gaming industry. Given this we look at Sony’s level of investment in gaming software to ascertain whether the company’s consistently strong performance over the past 2 decades in the home console market has allowed the company to gain a critical mass of IP and third party titles on its platform to continue attracting gamers.Final comments outline how the company’s subsidiaries are effectively collaborating to create value no other company can, and why this second layer of value creation is being missed. The research note then concludes the series by valuing Sony via a sum of the parts valuation and valuing the financial business at the implied valuation Sony paid in early 2020.

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Granite Bay Capital

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Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

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<h2>Headline Developments</h2>The verdict is out in the Apple (AAPL) vs Epic (private) case, with the court ruling that Apple cannot stop app developers from directing users to third-party payment options, whilst ordering Epic to pay damages for violating Apple’s in-app purchasing system.

Headline DevelopmentsThe verdict is out in the Apple (AAPL) vs Epic (private) case, with the court ruling that Apple cannot stop app developers from directing users to third-party payment options, whilst ordering Epic to pay damages for violating Apple’s in-app purchasing system.

This is the second of three research notes covering Sony Group. Part 1 looked at Sony’s semiconductor and electronics businesses and how they have both collaborated to redefine the interchangeable-lens camera market whilst both having their own idiosyncratic growth drivers. This note covers the company’s music business, the incredible behavioural biases currently affecting its perception and the first principles of digital and analog audio that lead to this perception. Secondly, the company’s pictures business is examined with an emphasis on the fact that Sony is the only major Hollywood studio to not have invested in its own streaming service. We show how this strategy to not pursue streaming has resulted in Sony being the sole major Hollywood studio able to supply exclusive content to streaming services, with all other majors unable to due to the fact they are competing with each other in the streaming market themselves. Finally, we look at how walls continue to be broken down between Sony’s business units whilst analysing PlayStation Productions, a collaboration between Sony’s music and gaming business. PlayStation Productions aims to leverage Sony’s extensive catalogue of renowned and maturing gaming IP into Film and TV adaptions, all at a time when exclusive content is commanding a premium price.

This is the second of three research notes covering Sony Group. Part 1 looked at Sony’s semiconductor and electronics businesses and how they have both collaborated to redefine the interchangeable-lens camera market whilst both having their own idiosyncratic growth drivers. This note covers the company’s music business, the incredible behavioural biases currently affecting its perception and the first principles of digital and analog audio that lead to this perception. Secondly, the company’s pictures business is examined with an emphasis on the fact that Sony is the only major Hollywood studio to not have invested in its own streaming service. We show how this strategy to not pursue streaming has resulted in Sony being the sole major Hollywood studio able to supply exclusive content to streaming services, with all other majors unable to due to the fact they are competing with each other in the streaming market themselves. Finally, we look at how walls continue to be broken down between Sony’s business units whilst analysing PlayStation Productions, a collaboration between Sony’s music and gaming business. PlayStation Productions aims to leverage Sony’s extensive catalogue of renowned and maturing gaming IP into Film and TV adaptions, all at a time when exclusive content is commanding a premium price.

Headline Developments On the back of the Epic v Apple case, documents were released highlighting that Google (GOOG) had considered buying Epic outright.  During the case, Epic Games outlined Google’s plans to develop “a series of internal projects to address the ‘contagion’ it perceived from efforts by Epic and others to offer consumers and developers competitive alternatives and has even contemplated buying some or all of Epic to squelch this threat”.

Headline Developments On the back of the Epic v Apple case, documents were released highlighting that Google (GOOG) had considered buying Epic outright.  During the case, Epic Games outlined Google’s plans to develop “a series of internal projects to address the ‘contagion’ it perceived from efforts by Epic and others to offer consumers and developers competitive alternatives and has even contemplated buying some or all of Epic to squelch this threat”.

Headline Developments: Another week, another major cyber attack!  Last Friday, a global ransomware attack hit up to 1,500 companies in what is believed to be the biggest supply chain attack to date.  In the attack, American software company Kaseya was compromised, opening a door for hackers to spread ransomware to managed service providers that use it’s technology, and in turn their clients.

Headline Developments: Another week, another major cyber attack!  Last Friday, a global ransomware attack hit up to 1,500 companies in what is believed to be the biggest supply chain attack to date.  In the attack, American software company Kaseya was compromised, opening a door for hackers to spread ransomware to managed service providers that use it’s technology, and in turn their clients.

Japan

Sony Corporation manufactures audio, home video game consoles, communications, key device and information technology products for the consumer and professional markets.  The Company's other businesses include music, pictures, computer entertainment, and online businesses.

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Sony Corp (6758 JP)

Sony Part 3: State of Play

In this note we look at Sony’s Gaming and Network Services (G&NS) segment and the fundamental pillars supporting its profitability.

Drawbridge Research

Weekly Innovation Review (WIRE) #49

The verdict is out in the Apple (AAPL) vs Epic (private) case, with the court ruling that Apple cannot stop app developers from directing users to...

Granite Bay Capital

Sony Part 2: Arms Dealer in an Arms Race

This note covers the company’s music business, the incredible behavioural biases currently affecting its perception and the first principles of...

Drawbridge Research

Weekly Innovation Review (WIRE) #44

Headline Developments On the back of the Epic v Apple case, documents were released highlighting that Google (GOOG) had considered buying Epic...

Granite Bay Capital

Weekly Innovation Review (WIRE) #39

Headline Developments: Another week, another major cyber attack! Last Friday, a global ransomware attack hit up to 1,500 companies

Granite Bay Capital

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