Sony's growing exposure to anime content makes it a top stock to buy, according to Goldman Sachs

• Sony's growing exposure to anime content makes it a top stock to own, according to Goldman Sachs.
• The bank upgraded Sony to "Buy" and added the stock to its conviction list with a price target suggesting 29% upside.
• "We believe Crunchyroll... is well-placed to benefit from accelerating Japanese anime consumption overseas," Goldman said.

Sony is a top stock to own thanks to its growing exposure to anime content via its Crunchyroll streaming service, according to a Wednesday note from Goldman Sachs.

The bank upgraded Sony to "Buy" from "Neutral" and set a price target of ¥16,000 for the Tokyo-listed shares, suggesting potential upside of nearly 30% from current levels. For Sony's ADR shares, it would suggest a price target of about $115. Goldman also added Sony to its conviction list, which highlights the bank's top stock ideas.

Sony acquired Crunchyroll from AT&T in 2021, and Goldman expects the anime-focused streaming service to help boost the company's operating profits as well as increase the demand for anime content around the world.

"In the past, overseas consumers had no means of accessing a broad range of Japanese anime, but the emergence of streaming services... provides access to anime content for any consumer with a smartphone, PC, tablet or other device," Goldman explained.

The bank said Crunchyroll is making a significant contribution to anime's growth in overseas markets, and that by 2036 they will account for 80% of Japanese anime sales.

Crunchyroll currently has just over 10 million paying subscribers and generated an estimated $1 billion in annual revenue. Goldman expects that figure to double to 20 million subscribers by 2027.

"Crunchyroll in unique position as a dedicated anime distribution platform... Crunchyroll is now positioned as the most appealing platform for Japanese anime fans both in terms of content volume and quality," Goldman said.

The quality of content is a sticking point for many anime fans, and Goldman said Sony can play to that strength by acquiring and developing exclusive anime content that drives fans to sign up for the service.

If Sony succeeds in growing its Crunchyroll subscriber base, it could improve earnings stability, as they will be less driven by the staggered release of blockbuster games on its Playstation 5 console.

"We also expect Crunchyroll to make stable earnings contributions, as its business centers on video distribution and revenues comprising a large part of monthly subscription fees. Accordingly, we expect Sony's future earnings to be less dependent on the single-year game and entertainment content pipeline than before," Goldman said.