PremiumSony Corp. surged to a 20-year high after raising its annual operating income outlook by 34%, banking on robust games sales and Apple Inc.’s iPhone 12.
The Tokyo-based company now expects to make 940 billion yen ($8.9 billion) in the fiscal year ending March, up from 700 billion previously. It’s forecasting a pickup in divisions spanning pictures, music and games as well as its imaging unit providing camera sensors for iPhones and other devices.
Shares jumped as much as 10.4% in Tokyo on Thursday, their biggest intraday gain since May 2019.
The newly launched PlayStation 5 sold 4.5 million units in its debut period despite production challenges limiting its availability. Sony is on track to surpass its goal of 7.6 million units by end of March and aims for a further 14.8 million or more in the next fiscal year, Chief Financial Officer Hiroki Totoki said. Demand for the games machine has exceeded Sony’s expectations, but component shortages across the industry may prevent the company from increasing production beyond its existing plans.
“We are doing our best on production so that we can ship as many units as possible at the earliest timing," the CFO said. The PS5 will continue to be sold at a loss next fiscal year, but the impact would be “neutral" once peripherals and PS4 sales are factored in, he added.
Sony also added 1.5 million PlayStation Plus subscribers, taking it to 47.4 million, and sold 4.1 million copies of its flagship Spider-Man game. The subscriber growth and software sales helped Sony beat all analyst estimates with 359.2 billion yen in operating profit for the quarter ended December. Demand for camera hardware from the iPhone 12 helped shore up Sony’s semiconductor business and that division should rebound in 2021, said Macquarie Group Ltd. analyst Damian Thong. Sony resumed supplying image sensors to a “major Chinese customer," Totoki said, without specifying which company.
“In addition to boosting hardware supply, Sony should make a bunch of PlayStation 5 games ready in the next fiscal year to push PS4 owners to move over to the new system," said Morningstar Research analyst Kazunori Ito.
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% 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 before results were released. Signalling 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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