Sony Loses $10 Billion After PS5 Sales Drop With Games Profit at 10-Year Low

By Thea Felicity

Feb 19, 2024 07:52 AM EST

Japanese tech giant Sony saw its stock value plummet by around $10 billion last week. The decline followed Sony's decision to revise its sales estimate for its flagship PlayStation 5 (PS5) console for the fiscal year.

Sony PS5 Sales $10B Loss

Prior to this latest update, analysts had been expressing mounting concerns regarding Sony's ambitious sales targets for the PS5. Originally setting its sights on selling 25 million units of the PS5, Sony recently made the decision to readjust its projection to a more modest 21 million units. This adjustment is slated to take effect by the end of the fiscal year in March.

The repercussions of this announcement were felt immediately across financial markets, resulting in a substantial dip in Sony's stock price. In mere days following the revised forecast, approximately $10 billion in market value was wiped off Sony's stocks.

It marked a significant blow to investor confidence in Sony.

Sony Gaming profit

However, aside from the PS5 sales, the more significant issue is at large. According to CNBC, Sony is experiencing decreasing profit margins, mainly from Sony Games.

Similar to Sony PS5 sales, analysts are particularly alarmed by the operating margin in Sony's gaming division. In the December quarter, it dropped to just under 6%. This is a notable decline from over 9% in the same quarter of 2022.

Atul Goyal, an equity analyst at Jefferies, highlighted the disappointment regarding the low operating margin. He noted that prior to the January-to-March quarter of 2022, margins at the gaming unit were consistently around 12% to 13%.

Goyal expressed concern that despite strong digital sales and the high-margin PS Plus subscription service, Sony's gaming margins are at their lowest point in almost a decade.

"Their rev (revenue) on digital sales, add-on-content, digital-downloads are at all time highs... And yet their margins are at decade-lows. This is just not acceptable.'

To shed light on the sudden state of Sony Gaming's landscape, Chief Executive Officer of Kantan Games Serkan Totohas pointed out that the production costs associated with the PlayStation 5 (PS5) hardware may have experienced a decline.

This means there's a contrasting upward trend in software production costs. For instance, Toto highlights the staggering production budget for "Spiderman 2," a game owned by Sony, which reportedly surpassed $300 million.

This juxtaposition of declining hardware costs against escalating software production expenses presents a formidable challenge for Sony's gaming division. The gaming industry's landscape is rife with intense competition. This further exacerbates the pressure on profit margins within Sony's gaming segment.

Sony's Response to Loss and Profit

As of now, Sony has remained notably reticent to address their alarming Sony PS5 sales and Sony Gaming division reports. Despite mounting inquiries and requests for comments on the matter, the tech giant has yet to respond formally.

For now, it leaves analysts and industry observers to speculate about the company's strategic approach in the future.