Sony Corp. raised its operating income outlook by 34 per cent after reporting stronger-than-expected quarterly earnings on the strength of robust gaming sales.
Operating profit for the three months ended December was 359.2 billion yen (US$3.4 billion), beating a 179.9 billion yen consensus among analysts. The company got a boost from games sales and PlayStation Plus subscribers while its image-sensor unit benefited from iPhone 12 demand and Chinese phone makers stepping up their efforts to replace sanction-stricken Huawei Technologies Co. on the global stage.
Sony’s latest PlayStation 5 console was launched during the period, but production challenges limited its availability.
At home in Japan, the PlayStation’s second-largest market, Sony is off to a slower start with the PS5 than prior consoles. Famitsu research estimated it has sold only 300,000 units since launch in November.
The PlayStation business is Sony’s top contributor and Chief Executive Officer Kenichiro Yoshida has told other units of the group that they should follow the same path in building a recurring revenue model. The company registered record subscriber numbers for its PlayStation Plus service in 2020 on the strength of stay-at-home entertainment demand.
What Bloomberg Intelligence Says
“Digital downloads accounted for about half of full-game sales in 2019 and 55-60 per cent in 2020 and may continue to gain until it approaches the 90%+ of PC games, though the pace of gains may slow from the five points per year shift experienced pre-COVID.”
- Matthew Kanterman and Nathan Naidu, analysts
Further subscriber growth for Sony’s services is limited, however, as most of the potential audience of gamers who’d consider joining may already be signed up, Nomura Securities analyst Yu Okazaki said. Signaling the importance of those digital subscribers to Sony’s bottom line, he expects the company’s operating profit from the game unit to be roughly flat for the next few years.
“Sony’s recurring business model is targeting a niche market of enthusiastic fans and thus its new member sign-up pace is likely to slow down,” Okazaki said.
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