Thoughts?
“CNBC: Sony plunged $10 billion after its PS5 sales cut. But a bigger issue is its near decade low games margin
The company's shares fell after the announcement, with around $10 billion of value wiped off the stock since the forecast cut, according to a CNBC calculation using FactSet data.
But analysts were watching another key metric — the operating margin in the gaming business — which came in just under 6% for the December quarter, according to a CNBC calculation. By contrast, Sony's operating margin was more than 9% in the December quarter of 2022.
"The shipment forecast cut for PS5 ... is not what is disappointing ... What is disappointing is the low level" of operating margin, Atul Goyal, equity analyst at Jefferies, said in a note to clients on Wednesday.
The latest quarter's single-digit margin for Sony is present "despite various tailwinds that should have driven up the margins towards 20%," Goyal said, adding that the situation is "extremely disappointing."
These tailwinds include sales of its first-party games, which are increasingly in the form of digital downloads, in addition to its high-margin PS Plus subscription service, which commands around 50% margin, according to Goyal.
Toto said that part of the reason why margins are being squeezed more recently is that software production costs have been rising.
"Spiderman 2," which came out last year and is produced by Sony-owned Insomniac Games, cost around $300 million to make, according to gaming website Kotaku, citing an internal presentation that was leaked after a ransomware group hackedthe company.
"So these budgets seemed to have a significant impact on their gaming margin over time," Toto said.”
“CNBC: Sony plunged $10 billion after its PS5 sales cut. But a bigger issue is its near decade low games margin
The company's shares fell after the announcement, with around $10 billion of value wiped off the stock since the forecast cut, according to a CNBC calculation using FactSet data.
But analysts were watching another key metric — the operating margin in the gaming business — which came in just under 6% for the December quarter, according to a CNBC calculation. By contrast, Sony's operating margin was more than 9% in the December quarter of 2022.
"The shipment forecast cut for PS5 ... is not what is disappointing ... What is disappointing is the low level" of operating margin, Atul Goyal, equity analyst at Jefferies, said in a note to clients on Wednesday.
The latest quarter's single-digit margin for Sony is present "despite various tailwinds that should have driven up the margins towards 20%," Goyal said, adding that the situation is "extremely disappointing."
These tailwinds include sales of its first-party games, which are increasingly in the form of digital downloads, in addition to its high-margin PS Plus subscription service, which commands around 50% margin, according to Goyal.
Toto said that part of the reason why margins are being squeezed more recently is that software production costs have been rising.
"Spiderman 2," which came out last year and is produced by Sony-owned Insomniac Games, cost around $300 million to make, according to gaming website Kotaku, citing an internal presentation that was leaked after a ransomware group hackedthe company.
"So these budgets seemed to have a significant impact on their gaming margin over time," Toto said.”
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