Sony: PlayStation console can defend group from dismal year

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Similar to Call of Duty’s heroic soldiers, PlayStation could save the day for Sony’s earnings this fiscal year.

Investors in the Japanese conglomerate have several concerns. These include its weak financial services business, falling demand for its image sensor chips and fierce competition among console makers. First-quarter results confirmed fears. But for the rest of the year, Sony expects PlayStation to lead the charge. 

Operating profit fell 31 per cent to ¥253bn ($1.8bn) in the period to June, as Sony’s financial business (mostly insurance) performed poorly. Earnings at its film unit also fell by two-thirds on higher marketing costs. Sony’s image sensor chip business too has suffered as global smartphone sales have slowed, down 11 per cent in the second quarter year on year. A market recovery is not expected until after 2024.

But Sony’s target to sell a record 25mn PlayStation 5 consoles in the current fiscal year merits attention. That number hardly looks a stretch. Sony can still cut prices, which it has already done in Europe. This has historically delivered a surge in sales. Sony will also hope for a year-end holiday season boost for the still new PS5. This was the most popular console in the US last Christmas.

Sony had already sold a record 19.1mn PS5 consoles in the fiscal year to March. A weaker yen since January should boost the top line. That explains a 2 per cent nudge upward to its full-year net income forecast. Strength in Sony’s gaming division, the largest contributor to group revenue, offsets group weaknesses elsewhere.

Shares have climbed 28 per cent this year, ahead of Japan’s market indices. Yet at 17 times forward earnings, they look reasonable value trading at about half their levels of three years ago.

Sony’s gaming business offers the group a useful hedge during the business cycle troughs for industries such as semiconductors. If PlayStation can hold the fort, preferably with one blockbuster game, Sony’s valuation can regain some of its lost premium.