Sony lost 10 billion dollars due to weaker sales of PlayStation 5

The Japanese technology giant Sony last week reduced its sales forecast for the most popular console, PlayStation 5 (PS5), resulting in a loss of as much as 10 billion dollars. Specifically, Sony announced that it expects to sell 21 million PS5 consoles in the fiscal year ending in March, while the previous forecast was for 25 million consoles. Sony’s shares fell immediately after the announcement, with a loss of about 10 billion dollars, according to data from financial firm FactSet.

However, analysts for CNBC say that a bigger problem is Sony’s decades-long low margin in the key gaming sector. Additionally, analysts observed another key metric, which is the operating margin, showing what percentage of revenue remains after the company covers its operating costs. Thus, the operating margin for the gaming industry was slightly below 6 percent for the last quarter of 2022, while Sony’s operating margin was above 9 percent during that period.

– The reduction in the PS5 delivery forecast is not what is disappointing. What is disappointing is the low level of operating margin – said analyst Atul Goyal for CNBC.

He added that in the last four years, prior to the quarter from January to March 2022, margins in the industry were around 12 to 13 percent. Furthermore, Goyal stated that a single-digit margin in the last quarter for Sony is ‘extremely disappointing’, and that there were indications suggesting that the margin should be heading towards 20 percent. These indications include the growth of sales and the acquisition of ‘digital games’ from the PS Store, as well as the growth of the PS Plus subscription service with a margin of 50 percent, according to Goyal.

– Sony’s revenue from digital sales is always high yet their margins are at the lowest level in the last decade. This is simply unacceptable – said Goyal, questioning how it is possible that with all those higher-margin products like the PS Plus service, the operating margin remains so low.