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Earnings

Sony’s share price: What to expect from Q3 earnings

Sony’s [6758.T] share price hit a year-high a week after its last earnings update. Those results not only beat analyst expectations, but its gaming business saw huge growth as customers fired up their PlayStations during lockdown. With Sony’s share price now trading 10.1% off its year high, will upcoming earnings and a strong launch for the PlayStation 5 propel Sony’s share price higher in November?

 

 

When is Sony reporting?

28 October

 

What happened last quarter?

Sony posted a first quarter profit of JPY228.4bn, a mild decline on the JPY230.9bn seen in the same period last year, and better than analysts had predicted. For the full year, Sony forecast profits would fall 26.7% to JPY620bn, better than the 30% drop it predicted in May.

Sony’s game and network services unit accounted for around 54% of operating revenue. For the full year, Sony expects this unit to see a JPY240bn profit, up from the JPY238bn profit gained in the same period last year. 

 

Subscription revenue a must-watch in earnings

Sony’s share price has proven resilient in the face of the coronavirus, thanks to the strength of its gaming business. In the first quarter, Sony sold 91 million games, up 82% on the previous year, with a record 74% increase in digital downloads. Subscribers to PlayStation Plus hit 44.9 million, well up from the 36.2 million seen in the same period last year. This helped to offset a decline in revenue in Sony’s other divisions. Whether an easing in lockdown measures has translated to a cool-down in gaming revenue will be well worth watching.

 

91million

games sold by Sony in Q1 2020

 

 

PlayStation 5 could level up Sony’s share price

November sees gamers get their hands on the much-anticipated PlayStation 5. 

In the last console cycle, Sony easily beat rival Microsoft [MSFT] with the PlayStation 4 selling 111 million units at the end of Q2 2020, compared with the Xbox One’s 51 million units, according to Ampere Analysis data.  

Ampere Analysis’ Piers Harding-Rolls reckons Sony will continue to dominate thanks to its focus on console-exclusive titles like God of War. By the end of the year, Ampere Analysis forecasts the PlayStation 5 will have shifted 5 million units, beating Microsoft’s Xbox Series S and X’s 3.9 million units. From there the PlayStation 5’s dominance will only increase, selling 67.3 million units by 2024 compared to the Xbox’s 44.3 million projected sales.  

Other analysts think Sony will exceed the 5 million mark before the year-end, with Damian Thong, co-head of Asia technology research at Macquarie Capital Securities, telling CNBC in August: 

"I expect 6 million units of that to be sold, basically snapped up … out the opening gate," he said. "And I would say that if you look at some of the recent trends, especially strong user engagement, strength in digital sales, most of these trends will carry over to the PlayStation 5, providing, I think, good earnings momentum for Sony in the next couple of years to three years."

 

“I expect 6 million units of that to be sold, basically snapped up … out the opening gate, and I would say that if you look at some of the recent trends, especially strong user engagement, strength in digital sales, most of these trends will carry over to the PlayStation 5, providing, I think, good earnings momentum for Sony in the next couple of years to three years.” - Damien Thong, Asia technology research co-head at Macquerie Capital Securities

 

 

A positive update on PlayStation 5 pre-order numbers and the launch strategy could move Sony’s share price upwards post-earnings.

 

What are analysts expecting for Sony’s share price?

Sony is forecast to post $17.5bn in revenue, according to the consensus estimate on investment website Zacks, this would see a 11.4% decline from the same period last year. Zacks consensus for adjusted earnings per share is $0.90, down 35.3% from last year.

Among the analysts tracking the stock on Yahoo Finance, Sony’s share price has an JPY8,085.50 average price target, which would see a 0.85% upside on the current price (as of 26 October’s close). Of the 25 offering recommendations, six rate Sony a Strong Buy and 14 a Buy. The rest rate Sony a Hold.

Macquarie Capital Securities Damian Thong’s has a JPY9,650 target on Sony’s share price, which would see a 20.4% upside on the current share price. Even more bullish is Amit Garg, a senior analyst at CLSA, who has a JPY10,400 target on Sony’s share price. Hitting this would see an impressive 29.7%% upside.

 

Market CapJPY9.92trn
PE Ratio (TTM)15.33
EPS (TTM)528.46
Quarterly Revenue Growth (YoY)2.20%

Sony's share price vitals, Yahoo Finance, 27 October 2020

 

Disclaimer Past performance is not a reliable indicator of future results.

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