(Bloomberg) — Sony Group Corp. raised its fiscal-year profit forecast, betting that improving prospects for its music, movies and electronics divisions will offset slowing gaming demand as the global economy starts to emerge from Covid-19.
The Tokyo-based entertainment giant increased its full-year operating profit outlook to 980 billion yen ($8.99 billion) from 930 billion yen previously. Operating profit for the quarter ended June was 280 billion yen, higher than the average analyst expectations of 226.1 billion yen. Sony switched its accounting method from U.S. standards to IFRS starting with the June quarter.
Sony Chief Financial Officer Hiroki Totoki said that the company’s key product, the $499 PlayStation 5, was no longer selling at a loss. The $399 PS5 Digital Edition is on track to have its loss offset by other hardware sales including peripherals and the PlayStation 4, the CFO added.
Vaccine rollouts have helped some countries start returning to pre-Covid work and lifestyle habits, though uncertainty about coronavirus variants remains. Sony said it expects higher income from film and TV show productions as well as an increase in licensing fee revenues. The company also sees music streaming revenue improving and higher sales of its digital cameras giving a boost to its electronics and image-sensor units.
Sony’s shares have gained 7.7% this year after rising 39% last year.
“Better camera sales are helping offset part of the concern for image sensors being hit by the loss of revenue from smartphone handset clients,” SBI Securities analyst Yoshiharu Izumi said after the results. “The focus so far has been on the group’s entertainment assets such as games and anime, but the first-quarter result confirmed its traditional electronics hardware business remains solid.”
The video game industry was among the big beneficiaries of last year’s surge in stay-at-home entertainment triggered by the pandemic, providing a tailwind for Sony’s PlayStation division. That effect appears to be waning as Sony reported weaker software sales for the period as well as slowing subscriber additions for its PlayStation Plus service and lower revenue from third-party games. PlayStation 5 hardware sales helped push up revenue in the most recent quarter, but the high cost of producing the console weighed on profits.
PlayStation Plus subscribers declined to 46.3 million from 47.6 million in the previous quarter and monthly active users fell to 104 million from 109 million. The company is maintaining its goal of selling over 14.8 million PlayStation 5 units this fiscal year.
“Going forward, Sony will be selling every single PS5 it puts into markets in a matter of seconds. Therefore, a challenge is not generating demand, but supply,” said industry analyst Serkan Toto. “On software, Covid-19 is affecting production and so many big titles that would drive hardware sales and PlayStation network subscribers got delayed to next year.”
Sony’s Fate/Grand Order smartphone franchise, one of the highest-grossing mobile games since its release in 2015, started to lose players to local competitor Uma Musume Pretty Derby made by Cygames, a CyberAgent Inc. unit. The six-year-old FGO is the marquee title in Sony’s smartphone games business, which is focused on the domestic Japanese market.
(Updates with PlayStation 5 production cost in third paragraph)
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