Sony Corp. surged to a 20-year high Thursday after raising its annual operating income outlook by 34%, banking on robust PlayStation 5 game console sales and Apple Inc.’s iPhone 12.
A continued boost from “Demon Slayer,” a blockbuster anime movie, also helped push up the profit outlook.
The Tokyo-based company now expects to make ¥940 billion ($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.
Full-year sales are now projected at ¥8.8 trillion, up from ¥8.5 trillion forecast in October.
Sony, which also revised its annual forecasts up last quarter, hiked its net profit outlook to a record ¥1.1 trillion for the fiscal year to March, from an earlier estimate of ¥800 billion.
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 game 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.
The much anticipated PS5 console hit shelves in November, kicking off a head-to-head battle for holiday sales with the new Xbox from U.S. rival Microsoft.
The demand for PS5 has led to chaotic scenes at electronic stores when supplies do become available.
“PS5 got off to a steady start in general, selling well in accordance with its plan,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.
“Initial shipping and marketing costs squeezed its earnings in the third quarter, but we should not be pessimistic so far,” Yasuda said.
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. Subscriber growth and software sales helped Sony beat all analyst estimates with ¥359.2 billion in operating profit for the quarter ended December.
Another boost for Sony came from a blockbuster animated movie based on the “Demon Slayer” manga series. Sony subsidiary Aniplex Inc. is a co-distributor with Toho Co.
Sony is expanding its entertainment business, with a deal announced in December to buy the operator of U.S. streaming service Crunchyroll from AT&T Inc.
“We see anime as our focused area. Interest in Japanese anime is rapidly increasing, especially outside of Japan. So we’d like to deliver high-quality anime to fans across the globe,” Totoki said.
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.
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.
Signaling 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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