Sony Lost $10 Billion in Stock Value
Sony has lost $10 billion in shareholder value after a new financial report. According to analysts, this isn't the result of lower sales of the PS5 consoles than the company expected.
Sony's value dropped by 10 billion dollars following the latest financial report. According to CNBC and data collected by FactSet group, the Tokyo giant was expected to suffer such a loss in its shares.
It's true that the value of Sony stocks fell sharply after the company announced the PlayStation 5 results. The console didn't meet the company's expectations, leading to a reduction in its previous sales projections for this fiscal year from 25 million to 21 million units.
However, this isn't the reason for the company's stock value decrease. In fact, analysts knew that the forecast sales of PS5 were too high. So this isn't a disappointment for investors, which cannot be said about another statistic: the operating margin from the gaming segment.
- Atul Goyal, an analyst at the American Jefferies group, pointed out that for the last 4 years, this indicator has remained at a level of several percent. Sony was expected to approach a 20% operating margin due to the "favorable circumstances" last year, including revenues from sales of games, digital content, and PlayStation Plus subscriptions.
- Meanwhile, the report states that Sony Interactive Entertainment's sales profitability ratio is only 6%. According to Goyal, this is one of the lowest SIE results in ten years, which came as an unpleasant surprise to investors given the otherwise high revenues.
Their [Sony Interactive Entertainment] rev on digital sales, add-on-content, digital-downloads are at all time high... And yet their margins are at decade-lows. This is just not acceptable.
Goyal didn't investigate the reasons for these disappointing results, but one of them was indicated by Toto Serkan. The CEO of Tokyo-based consulting company Kantan Games pointed to the increase in the cost of software production. Furthermore, we know that Marvel's Spider-Man 2 cost $315 million (via Kotaku / Wayback Machine), and this isn't the only game that could have cost Sony that much money.
The low profitability rate was probably not affected by PlayStation 5. Serkan notes that Sony should have optimized the production of its latest console after three years, so the associated costs should decrease rather than increase.
Whatever the reasons may be, a low operating margin could explain the desire to improve the "business" in studios belonging to Sony Interactive Entertainment and the "active" improvement of profits. This approach was announced by Hiroki Totoki, CEO of SIE.
