200 Billion Reasons Says It'll Be a Very Sony Christmas

(Bloomberg Opinion) -- Concerns that the forthcoming release of the PlayStation 5 could depress Sony Corp. revenue in the September quarter weren’t realized, paving the way for what could be a blockbuster holiday season for the Japanese giant. 

What’s worth noting, however, is the supporting cast that helped set the company up for such a good fiscal 2020 that it boosted both its sales and profit forecasts. To be clear, Sony usually sandbags its full-year outlook in the first half so it can upgrade in the second.

While Sony did indeed suffer a drop in PlayStation 4 hardware sales, this shortfall was more than made up for in revenue from both software and PlayStation Plus subscriptions. The replacement PlayStation 5 is due for release next month, and Sony said it expects to sell at least 7.6 million units by the end of March.

Investors should cheer this robustness, which indicates that the company has a strong enough offering to keep driving demand even when its current flagship console is at the end of its life. If Sony can execute on production and distribution, then the new device promises to be sitting under many trees come Christmas.

This optimistic view prompted Sony to raise full-year revenue guidance by 200 billion yen ($1.9 billion), or 2%, from its August outlook. The games division accounted for half of that revision, driven primarily by the belief in stronger software shipments and subscription numbers.

More importantly, the company boosted its operating income forecast by 13%, with the games unit accounting for three-quarters of that increase. From 100 billion yen in higher revenue from games, Sony expects to squeeze out 60 billion yen in profit — that’s some fine operating leverage. If shipments of the PS5 do even better than expected, then there’s room for more upside on both hardware as well as software and subscriptions.

In these pandemic-afflicted times, what’s also valuable is any ability to mitigate downsides. The motion picture business looks slightly healthier than it did in August, though Sony still expects a 25% drop in revenue. The profit forecast at that division is being raised 17%. 

It’s in music, though, where Sony is finding unexpected strength. Consumers stuck at home seem to spend more money on streaming services. The company posted 79 billion yen in streaming revenue for the September period, the most in at least six quarters, and margins are climbing. 

There are many ways this could fall apart. The PS5 might turn out to be a dud, or Sony fails to ship as many as demanded. The sensor division, already facing a cut in sales and profit, could deteriorate further, and the movie business remains in a precarious situation as the world awaits an end to Covid-19 shutdowns of production sets and cinemas. 

But for now, it seems that Sony can prepare for a very Merry Christmas.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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