Sony is playing the game better than Nintendo
Sony’s games drove healthy results last quarter, but trades at a discount to Nintendo Sony game Marvel's Spider-Man sold 3.3 million copies when it was released, contributing to a 65% increase in profits.
Having more than 80 million people use your products can be pretty profitable. Just ask Sony.
On Tuesday, the Japanese technology giant reported better-than-expected results for its last quarter. The main driver? Games. Operating profit from this division, which makes up nearly 40% of Sony’s total, rose 65% from a year ago.
The continuing popularity of Sony’s PlayStation 4 certainly helps: The company has sold 86 million units since its launch in 2013. Importantly, more gamers means higher games sales, which come with better margins than hardware: “Marvel’s Spider-Man,” a game published by Sony itself, sold 3.3 million copies in just three days after its launch last month. Sony’s games division achieved a16.5% operating profit margin in this business last quarter, well above the group’s overall 11% margin.
After adding in an expected bump from its $2.3 billion acquisition of a 60% stake in music publisher EMI, a deal expected to close later this year, Sony was able to raise its operating profit forecasts by 30% to a record ¥870 billion ($7.7 billion) for the year ending March—9% higher than consensus estimates on S&P Global Market Intelligence. Its actual earnings could be even higher since Sony has traditionally lowballed its profit guidance.
The story is quite different for another Japanese games giant, Nintendo. Its operating profit rose 30% last quarter but missed analysts’ consensus forecasts, largely because sales of its Switch console — launched last March — haven’t grown as fast as expected. Barring a bumper holiday season over the next two months, Nintendo will likely fall short of its sales target of 20 million units for this year ending in March, as it only sold 5 million units in the first half. Sony’s shares have outperformed Nintendo’s by 30% this year, but the latter still trades at 21 times expected earnings for this fiscal year while Sony trades at 10.6 times, using the company’s revised guidance. With investors globally hesitant to pay up for growth right now, Sony looks like a better game to play.