The company’s capitalization fell by $10 billion last week.
According to CNBC, Sony’s lower forecast for the number of PlayStation 5 game consoles planned for delivery at the end of the current fiscal year had a negative impact on the company’s stock quotes, but investors were simultaneously disappointed by the decline in profit margins in the gaming business, which brings Sony the main income.
Image Source: Sony
According to the source, investors were wary of a combination of factors influencing Sony’s profit margin in the gaming segment in different directions. On the one hand, the share of digital distribution of games is growing, which is more profitable for the company, and at the same time the number of PS Plus subscribers is increasing. In theory, all these trends should raise Sony’s operating profit margin in the gaming segment, but it dropped to 6% last quarter, although the year before it reached 9%. Until the end of 2021, this indicator remained at 12 to 13% for four years in a row. Current trends should have pushed operating profit margins beyond 20%, but that hasn’t happened, Jefferies analysts said.
In their opinion, the problem lies in the increased costs of game development, since the release of game consoles directly at this stage of the PlayStation 5 life cycle should actually cost the company less than at the start of sales. By some estimates, Spiderman 2, released last year alone, required about $300 million in expenses, and such trends are undermining the profitability of Sony’s gaming business as a whole.