Sony Group Earnings: Midterm Strategy for PlayStation Should Be Addressed; FVE Maintained

We maintain our fair value estimate for Sony Group at JPY 14,500 per share, but our fair value per U.S. ADR is trimmed to USD 97 due to currency movements. While the PlayStation and the image sensor businesses did not meet our expectations, the shortfall is largely offset by the weaker-than-expected Japanese yen and robust sales growth in streaming music. Therefore, we largely maintain our earnings forecasts and our view that growth in the content businesses (games, streaming music, and movies) and the image sensor business will drive Sony’s growth in the medium term. Meanwhile, we are somewhat concerned that the long-term strategy of the game business is becoming uncertain as the restructuring of its game studios is underway and the pipeline of first-party games is being revised. Jim Ryan, president and CEO of SIE (Sony’s gaming division), who has been with Sony for about 30 years, has announced his retirement and a successor will be selected under the leadership of Hiroki Totoki, president of the Sony Group, who will serve as interim CEO of SIE. The long-term strategy for the game business will be formulated under the new CEO.