Sony Record Earnings Boosted By Gaming and Music

Japanese electronic giant Sony reported a record operating profit for the three months ended Sept.30 on Tuesday. SNE’s move to a subscription model in gaming and music is delivering upside surprises. Playstation profit rose 65% on the year.

Japanese electronic giant Sony reported a record operating profit for the three months ended Sept.30 on Tuesday. SNE’s move to a subscription model in gaming and music is delivering upside surprises. Playstation profit rose 65% on the year.

sony vr headset

Sony Corp NYSE: SNE Report Earnings Before Open Tuesday

$1.20 EPS Beat Exp $0.91 EPS

Earnings

Sony Corporation (SNE) reported second-quarter fiscal 2018 results with an operating income of  ¥239bn for the September quarter ahead of analysts’ average estimate for ¥205bn. Revenue was ¥2.2tn ahead of the consensus ¥2.1tn. Sony’s net income increased 32.2% year over year to ¥173 billion or ¥133.43 per share ($1.6 billion or $1.20 per share) . The bottom line comfortably surpassed the Zacks Consensus Estimate of 91 cents.

Operating profit at the PlayStation division rose 65 per cent from a year ago to ¥91bn for the September quarter, accounting for a third of all company income. Sales for the September quarter climbed 27 per cent to ¥550bn.. Analysts polled by Reuters forecast an operating profit of 794.71 billion yen, topping the record 729.9 billion yen reported in the last fiscal year.

Sony  last announced its quarterly earnings data on Tuesday, July 31st. and reported $1.60 earnings per share for the quarter, beating the consensus estimate of $1.16 by $0.44. SNE had revenue of $1,953.62 billion for the quarter, compared to analyst estimates of $1,882.28 billion.

Sony Corp NYSE: SNE

Market Reaction ▲ 2.26 (+4.43%)

Segments

  • Sales at G&NS increased 27% year over year to ¥550.1 billion primarily due to increase in game software sales.
  • Sales at Music declined 1.3% to ¥203.9 billion owing to lower recorded music sales.
  • Sales from Pictures decreased 1.3% to ¥240.9 billion largely due to decrease in sales for Motion Pictures.
  • Home Entertainment & Sound sales came in at ¥274.9 billion, down 8.6% on a year-over-year basis. This was due to decrease in television unit sales resulting from the strategic decision to not pursue scale in order to focus on premium models for higher profitability.
  • Sales at IP&S were up 4.6% to ¥163.9 billion. Improvement in the product mix of still and video cameras reflecting a shift to high value-added models drove the performance.
  • Mobile Communications (MC) sales declined 31.5% to ¥117.8 billion due to decrease in smartphone unit sales primarily in Europe, Latin America and the Middle East.
  • Semiconductors sales in the fiscal second quarter increased 11.4% year over year to ¥254.4 billion owing to significant increase in sales of image sensors for mobile products.
  • Financial Services sales were up 26.6% to ¥353.5 billion. Significant increase in revenues at Sony Life and higher insurance premium revenues boosted the segment’s performance.
  • Sales at All Other were down 21% to ¥89.1 billion.

Total costs and expenses were ¥1,945.6 billion ($17.4 billion), up 4.6% year over year, primarily due to higher financial services expenses. Operating income was ¥239.5 billion ($2.1 billion), up 17.3% from the year-ago quarter. Improvement in the operating result of the G&NS, IP&S, Semiconductors and Financial Services segments proved conducive to operating performance.

Cash Flow and Liquidity

For the first six months of fiscal 2018, Sony generated ¥410.8 billion of cash from operations compared with ¥265.4 billion in the year-ago period. As of Sep 30, 2018, Sony’s cash and cash equivalents were ¥1,540.8 billion ($13.5 billion) while its long-term debt totaled ¥510.2 billion ($4.5 billion).

Outlook

The December quarter also looks strong with one of the best third-party lineups in the PlayStation’s history. Analysts predict record sales of Red Dead Redemption II, released last Friday, after it became the best-reviewed game of the year, according to Metacritic.

Red Dead Redemption 2

This month’s Call of Duty: Black Ops set a new PlayStation record for first day digital sales.

Other big titles expected this quarter include Battlefield V, Fallout 76 and Just Cause 4.

Fortnite, a free-to-play game, also delivered a boost during the quarter as spending on in-game items, with revenue shared with Sony jumped during the school holidays. Introduced last year, it has become this year’s hottest title, especially popular with teenagers.

“Fortnite delivered explosive profits over the summer months. That will contribute to Sony’s top line in a significant way,” said Hideki Yasuda, senior analyst at Ace Research Institute. 

Preview

  • Sony is expected to upgrade its full-year guidance 
  • Unit sales of the PlayStation 4 game console are seen declining 11% for the full year through March 2019.
  • However membership for PlayStation Plus, the multiplayer-enabled online gaming service that charges the equivalent of $45 a year in Japan has blossomed. Subscribers reached about 34 million at the end of June, up nearly 30% from March 2017.
  • The game segment’s profit continues to grow with popular titles like “Marvel’s Spider-Man” and the latest installment in the “God of War” series in the April-September half.
  • The games segment accounts for over 24 percent of total revenues, grew 35.6 percent year-on-year in the three months that ended on June 30.
  • Sony has also seen growth in its image sensor business, which sells to smartphone makers for cameras within the handsets.
  • In the music segment, the Spotify streaming service, in which Sony holds a stake through a subsidiary, gained users.
  • Sales were also strong for smartphone game apps.
  • Sony is still awaiting the European Commission clearance for its $2.3 billion takeover bid for EMI Music Publishing. The successful buyout would almost double the number of songs the company controls from 2.2 to 4.2 million compositions, making it one of the world’s largest music publishers.
  • Production of Sony image sensors used in Apple’s new iPhone in the July-September quarter boost the semiconductor segment.
  • The addition of second cameras by smartphone makers, especially in China, has led to steady growth in sales volume of image sensors.
  • Sony focuses on high-end models where televisions and digital cameras have sold well. 
  • The mobile communications segment struggles with 10.7 billion yen operating loss in the April-June quarter, the smartphone business is likely to book an even wider loss for the three months through September.
  • Sony had projected a 9% decline in operating profit to 670 billion yen for the current fiscal year. The revised forecast may exceed last fiscal year’s record profit of 734.8 billion yen.

Nomura analyst Yu Okazaki said in a note published earlier in Octoberthat Sony’s business model is shifting to focus on content, citing the good start of new PlayStation 4 game “Spider-Man,” and movie “Venom,” both of which are produced by the company’s content studios.

“Strong performance in these content-related areas means that near-term earnings have probably been better than we had previously expected,” Okazaki said in the note.

The company has a strong international presence with the majority of revenues coming from emerging markets. With that SNE has been suffering from negative impact of foreign currency fluctuations. Fluctuations in foreign exchange rates, particularly yen, the U.S. dollar and euro, impact Sony’s financials as it has significant exposure in these currencies, both in terms of sales and production costs.

As many segments of the company have concentrated operations in specific regions, the currency impact differs from segment to segment.

 From The TradersCommunity Research Desk

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