Morningstar | Sony’s New Guidance Implies That Peak Out of PlayStation 4 Will Be Fulfilled by Other Businesses
Sony’s operating income guidance for the new fiscal year is JPY 810 billion, which is essentially flat from the previous year excluding a onetime profit, and in line with our forecast of JPY 820 billion. The new guidance will encourage the market, as we believe investors were concerned that Sony will not be able to compensate for the sharp slowdown of PlayStation 4 and mobile games, which had dragged down Sony’s share price over the past few months. We believe that profit from PlayStation 4 platform will decline from the previous year but will still be above the market’s expectation, as robust network sales, including revenue from add-on contents and monthly subscription service, will mitigate slowdown in sales from the trough of console cycle. Meanwhile, solid revenue growth of pictures and streaming music, and progress on restructuring the handsets business will compensate the profit decline on games. We will review our forecasts after the corporate strategy meeting and the IR day, which are held at mid-May, but do not expect to make material change to our fair value estimate of JPY 6,000 as we believe that its guidance is in line with our long-term view.Regarding Google’s intention to launch its own cloud gaming service, Stadia, Sony’s management mentioned that it has already been operating its own streaming game service, PlayStation Now since 2014, providing more than 750 game titles to 700,000 users. We assume that Sony considers home consoles can still provide better user experience, as there is some latency between the input and the output on cloud games. However, as technical issues should be eventually resolved, we expect that streaming services will be mainstream in the longer run. Therefore, we are concerned about the cannibalization of existing console game business and the new streaming game business, and expect that Sony will elaborate on its long-term business plan at the IR day.
Sony is engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets such as network services, game hardware and software, televisions, audio and video recorders and players, still and video cameras, mobile phones, and semiconductors. Co. is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as the production and distribution of animation titles. Co. is also engaged in the production, acquisition and distribution of motion pictures and television.
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