Sony Earnings: PS5 and Image Sensor Momentum Expected To Improve From the September Quarter Onward

Despite somewhat disappointing June quarter results, we maintain our fair value estimate for Sony 6758 at JPY 14,500, while our fair value per U.S. GDR is lowered from USD 110 to USD 100 due to the weaker Japanese yen. The growth of PlayStation 5, or PS5, and image sensors is not as fast as we had expected, but we believe they will return to a growth trajectory in the next fiscal year. Meanwhile, our outlook for sales in the music segment to continue to grow along with the expansion of the streaming music market remains unchanged, and other businesses—consumer electronics and pictures—will maintain solid profitability with disciplined cost control. As a result, we are changing our Uncertainty Rating to Medium from High due to the improved stability and visibility of Sony’s earnings. While we lower our fiscal 2023 (financial year ending March 2024) earnings forecasts, we largely maintain our outlook for 2024 and beyond, and we view Sony’s shares as undervalued as the market is too pessimistic about the temporary slowdown.

PS5 console shipments in the June quarter were 3.3 million units, below our expectations of 4 million units and somewhat below the pace of the company’s guidance of 25 million units for this fiscal year. We believe that this was partly due to the strong shipments of the Nintendo Switch, driven by the blockbuster success of The Super Mario Bros. Movie, which took some demand away from the PS5. Therefore, we expect PS5 shipments to accelerate in the coming quarters as Switch shipments stabilize. On the other hand, it is encouraging that the number of monthly active users in the June quarter has increased to 108 million from 103 million a year ago, and the number of games sold in the quarter has increased 20% from the previous year, suggesting that user activity is increasing as users migrate to the PS5 platform.