Sony profit outlook misses estimates as PS5 appeal wanes

SONY Group Corp. said it expects operating income of ¥1.28 trillion ($8.2 billion) in the year to March, missing analyst expectations for both profit and sales as Playstation 5 hardware sales wane.

The Tokyo-based entertainment leader also said it would buy back up to 2.46 percent of shares for ¥250 billion. The company will conduct a five-for-one stock split, effective October 1, it said in announcing fullyear earnings on Tuesday.

Profit in the most recent quarter was better than expected. Sony said net income in the three months to March was ¥189 billion, above the average analyst estimate of ¥153.2 billion. Sales reached ¥3.5 trillion.

The business in the current year will be bolstered by Sony’s music publishing and smartphone image sensors units, Sony said, both of which benefit from the weaker yen. In music, much of Sony’s revenue comes from streaming of content catalogs including artists like Lil Nas X and Michael Jackson. Spotify Technology SA reported a 14-percent jump in paid subscribers for the past quarter, expanding the audience for that material.

Sony makes its image sensors in Japan and sells them overseas. Smartphone markets returned to growth in the March quarter, with the Chinese consumer helping drive a recovery. Mobile makers are again increasing investment in new hardware and components, after whittling down inventories of unsold devices.

Shares in Sony have been under pressure this month as mounting speculation about the terms of its potential $26 billion bid for Paramount Global has weighed on sentiment. Investors are wary about the costs involved in acquiring Paramount’s film and TV library and integrating the business into Sony’s wider entertainment empire.

President Hiroki Totoki did not confirm Sony’s interest in Paramount, though he said it would be natural for Sony to explore attractive M&A targets and the company would be willing to make a move at the right price. The yen’s weakness will not pose a major challenge to completing acquisition deals that the company considers worthwhile, he added.

The Paramount takeover is one of several deals Sony is engineering, as the Japanese company seeks to expand its digital content collection. While a merger with India’s Zee Entertainment collapsed this year, Sony is bidding against private equity funds Blackstone and KKR for control of Japanese e-comics provider Infocom Corp. in a deal estimated to be worth around $1.3 billion.

In the core games business, the Playstation 5’s upcoming game pipeline appears questionable, as Sony has said it won’t release any titles from its biggest first-party franchises like God of War or Bloodborne in the year to March. The company’s executives have also said that the console, released in 2020, is now on the downslope of hardware sales— setting the stage for a potential updated edition for the holiday period this year. Sony sold 4.5 million PS5 consoles in the March quarter. Active users on its Playstation Network declined to 118 million in the period. Playstation 5 exclusives, such as Square Enix Holdings Co.’s Final Fantasy VII Rebirth, have not performed well in recent times, pushing publishers like Square Enix away from locking their content down on a single platform.