Tag: Sony

Sony’s PlayStation Group Delivers Solid Fiscal 2024 Q1 Despite Double-Digit Hardware Declines

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As the earnings calendar dictates, here’s another recap incoming.

Today I’ll be rounding out the big three of gaming after my articles on Microsoft and Nintendo!

Sony Corp shared fiscal 2024 first quarter results in Japan. As usual, I’ll focus on its Game & Network Services (G&NS) segment i.e. the PlayStation business, which had a solid three-month period, boosted by services and add-on content, despite a distinct lack of catalysts especially for hardware.

Here’s the headlines from PlayStation’s April to June 2024 quarter.

  • Revenue increased 12%, albeit mostly due to yen weakness.
  • Operating profit moved up over 30%.
  • PlayStation 5 hardware unit sales declined double-digits.
  • PlayStation Network (PSN) saw comfortable user growth.

There’s significant impact from currency movements on a Japanese company that operates globally. Fluctuations have a major impact on sales, and to a lesser extent on profit. As I’ll show later, without exchange rate deterioration, PlayStation revenue growth would be a more modest 1%.

PlayStation 5 shipments appear to have topped off, at least for now and perhaps permanently, as it now trails its predecessor by an even wider margin than last quarter. The upward trajectory of financials here are being bolstered by PSN and downloadable content spend, not to mention savings from laying people off and closing studios.

Management pointed out an “increase in sales from network services, mainly PlayStation Plus,” which clearly benefited from recent price increases, while also noting the “decrease in sales of hardware due to a decrease in unit sales.”

Read on for a closer look at the group’s performance plus a set of near-term predictions.

As you’ll see in the gallery above, here’s the scoop on PlayStation’s quarter overall.

  • Revenue rose 12% to $5.56B.
  • This included $589M of currency impact.
  • Operating profit jumped 33% to $419M.
  • This included of currency impact.

Excluding currency movement, the top line (revenue) was a slight increase of 1% while the bottom line still generated an impressive 30% gain. Executives did call out first party software sales as one of the contributors, alongside impressive growth for services and add-ons.

The firm also mentioned peripherals. I’d guess partially the DualSense Edge controller and mostly the PlayStation Portal. I’d love if Sony shared more about how the cloud-based streaming handheld is faring. Indicators point to a good amount of demand, I’m just unsure about how many were actually produced for market. I also don’t think the gains were from PlayStation VR2.

There’s also the unfortunate impact of layoffs that are meant to reduce costs, which is one reason G&NS profit metrics are up. It happened after the quarter end, yet something like Bungie is an example that any subsidiary can be hit by layoffs or restructurings in the hopes that these numbers will look better for investors.

Underlying the sales movement were the following categories by dollar sales:

  • Add-On Content rose 37% to $1.87B.
  • Network Services increased 28% to $1B.
  • Hardware dipped 22% to $941M
  • Digital Software lowered 8% to $912M.

The G&NS segment is effectively being carried by its services and downloadable content slices, the knock-on from something like Helldivers 2 or MLB The Show 2024, those PS Plus price increases and the likes of June’s Elden Ring: Shadow of the Erdtree and, albeit to a lesser degree, Destiny 2: The Final Shape expansions.

Taking into account this latest quarter, I’ll now tally the trailing 12-month figures.

  • All-time high annualized revenue of $28B, up 14%
  • Operating profit 24% higher to $1.97B.

In both cases, the annual trend-line is quite positive due to some of the same aforementioned reasons as the quarter, while acknowledging sales are highly susceptible to currency fluctuations.

I’ll now expand on the hardware side, namely around units shipped to retail.

  • PlayStation 5 shipped 2.4M between April and June.
  • During Q1 last year, the console moved 3.3.
  • PlayStation 4 also had 3.3M in the same quarter.
  • PlayStation 5 lifetime sales are now 61.7M, behind PlayStation 4’s 63.5M.

While these numbers seem gloomy, I wouldn’t yet overreact on this console generation. (Not until next year’s Grand Theft Auto VI, at least.) PlayStation 5 is keeping up with or exceeding the sales speed of consoles historically. It’s trending 7% above PlayStation 4 in the United States, according to Circana, and will be the top seller in most key markets this year.

It’s no secret PlayStation 5 adoption is slower than the previous cycle. Sony also didn’t provide an update on sell-thru to consumers, which was at 50M back in December 2023. Based on this, I assume it hasn’t crossed the 60M milestone despite shipping nearly 62M to date.

Now, switching over to software unit sales stats from this latest announcement.

  • Game sales across PlayStation were 53.6M, down from 56.5M.
  • First party titles totaled 6M, compared to 6.6M.
  • Digital downloads contributed 80%. (Pretty sure an all-time high.)

Management attributed growth from software to first party sales, which I assume counts Koei Tecmo’s Rise of the Ronin and Shift Up’s Stellar Blade, both of which were published by Sony Interactive Entertainment. There was also May’s PC launch of Ghost of Tsushima, fitting with the firm’s strategy of diversifying beyond consoles.

Signs point to lower output on the third party side for Final Fantasy 7 Rebirth, compared to last year’s Final Fantasy XVI. These exist under a console exclusive relationship that will probably go away soon based on Square Enix’s decision to shift towards multiple platforms.

In terms of general engagement, which is often driven by evergreen games like Minecraft, Fortnite and Roblox in combination with newer experiences, Monthly Active Users (MAUs) across PSN jumped from 108M to 116M. It was down sequentially since the March quarter’s 118M.

It was a decent start to PlayStation’s 2024 fiscal year, featuring slight revenue growth excluding currency impact, a nice boost to operating profit and a great supplement from PSN alongside its subscription business. Publishing partnerships with Asian developers like Team Ninja and Shift Up appear to have appeal within Sony’s global user base, even if not directly driving console sales.

PlayStation 5 may have very well peaked, indicated by a couple quarter’s worth of lower unit sales, though we’ll know for sure if that’s the case within the next year or so between the potential for an upgraded model plus a massive Rockstar Games title that may well lead to widespread upgrades.

Progressing into the fiscal year, it’s time to review Sony’s increased annual outlook for PlayStation.

  • Now expects full year revenue up 1% to $27.8B.
  • It would be a new local currency record.
  • Operating profit guidance is now $2.1B, which would be up 10%.
  • PlayStation 5 shipment forecast remained at 19M, unless I hear otherwise.

I’d see this sort of slight upward revision in guidance as reassuring, especially since it happened in a first quarter, when companies are often unsure about moving around their expectations.

Especially with the yen’s continued weakness, the revenue number should be achieved. That level of profit is also reasonable, even if I see downside depending on how PlayStation navigates costs, for example if a new PlayStation 5 is in development and production.

It’s that hardware portion where I’m more cautious than management. I initially thought Sony might increase the forecast over the fiscal year. I’m now betting it remains flat into next quarter. Personally, I have PlayStation 5 units at 19M to 19.5M in fiscal 2024.

Sony needs a spark, and it doesn’t have much on the exclusive side as the commercial season ramps up. There’s live service shooter Concord, which has been praised during its testing phase though there’s questions around its broad interest. AstroBot is a near full-priced platformer, the closest thing to the brand’s true mascot. I’m not sure it’s blockbuster or system-seller material.

I see more impact from external titles, for instance Ubisoft’s double feature of Star Wars Outlaws and Assassin’s Creed Shadows. Electronic Arts has its sports franchises, including the likes of July’s EA Sports College Football 25 at 5 million players strong. Then there’s Call of Duty: Black Ops 6 from Activision Blizzard which might be hampered in this context by its inclusion on Game Pass.

The elephant in the room is how about that long-rumored PlayStation 5 Pro? The closer we get to the holidays, the more dubious I become it will both hit market in 2024 and have a notable impact outside of “enthusiast upgraders.” If a fancy model is going to be out by October or November, Sony’s running out of time to start up a big marketing push.

Thanks again to everyone who stopped by for my latest recap of a major player in the games industry. Be safe and take care, all!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥155.6.

Sources: Circana, Company Investor Relations Websites.

-Dom

Helldivers 2 Launch Pushes PlayStation to Annual Sales High & Profit Growth in Fiscal Year 2023 Report

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As earnings season marches on, I’ll wrap up this week with my final recap of the big three gaming manufacturers.

Sony, the largest of the group by sales, has reported its fiscal year 2023 results. In this piece, I’ll cover mostly the annual financials to give a broad perspective of where the PlayStation division has been recently and will be soon.

If any of the data is quarterly, I’ll point that out.

That said, here’s the big headlines from PlayStation’s portion:

  • Achieved record annual revenue above $29B.
  • Reported double-digit operating profit growth.
  • Biggest year of unit sales for a PlayStation device despite missing target.
  • Breakout success of Helldivers 2 across both console and PC.

Underlying the record top-line and profit performance was a boost in third party sales, including downloadable content, headlined by the likes of surprise hit Helldivers 2 from Arrowhead Game Studios and Insomniac Games with Spider-Man 2, the former highlighting the benefit of adopting PC and the sizeable upside of live service risk.

Additionally, yen depreciation had a tangible impact on annual growth, as I’ll illustrate shortly. This currency effect is amplified for Japanese companies operating globally.

Throughout this time frame, PlayStation 5 hardware closed the lifetime sales gap with its predecessor and passed another milestone on the global best-seller list. On the software side, unit sales increased while shifting towards a digital split.

“During the PlayStation 4 generation, we were able to significantly grow profits in this segment thanks to rapid digitalization and the expansion of network services,” management wrote.

“In the PlayStation 5 generation, which has capitalized on the established PlayStation 4 user base, the trend is hard to see due to the impact of stay-at-home demand and acquisition-related expenses, but, since the launch of the PlayStation 5, we have continued to achieve a high level of, and more stable, profit growth.”

Read on for more detail around Sony’s latest numbers and predictions for the next year!

The above slides show Sony’s Game & Network Services (G&NS) division results for the year overall.

  • Annual revenue increased 17% to $29.55B.
  • This included $1.9B of currency impact.
  • Operating profit rose 16% to $2.01B.
  • This includes $267M of currency impact.

I’d point your attention to the above gallery, namely the operating income chart I compiled which illustrates the Helldivers 2 effect, and more broadly shows what happens when Sony’s live service effort pays off. Quite literally.

Until the final quarter of its fiscal year, operating profit was trending down 25%. After January to March, the year ended up as a double-digit increase!

Moving on to products categories within G&NS, here are select annual revenue and growth stats:

  • Hardware was $8.39B, up 8%.
  • Add-On Content hit $7.5B, up 26%.
  • Digital Software at $5.89B, up 29%.
  • Network Services reached $3.78B, up 17%.

On the strength of newer launches and evergreen titles, Add-On Content surpassed Hardware in Q4 alone, though the latter became the leading segment for the full year as PlayStation 5 reached the middle of its life cycle (yes, already!).

Within the console side of the business, it was a banner year for shipments even if Sony’s forecast was too ambitious (as I wrote since they first posted it). Hardware results were:

  • PlayStation 5 shipped 4.5M units in the March quarter, down from 6.3M.
  • This led to a fiscal year shipment total of 20.9M, compared to 2022’s 19.1M.
  • Slightly below Sony’s 21M target, and well below its original guidance of 25M.
  • Still, it’s above PlayStation 4’s 20M in the same year, which was its best.

Check out the image below for a full comparison of the last two Sony console generations, showing that PlayStation 5’s current 59.3M lifetime was less than a million off PlayStation 4 at 60.2M, much closer than other points in their launch-aligned history.

As for the broader industry, PlayStation 5 officially surpassed the lifetime unit total of Microsoft’s Xbox One, which launched in 2013 and ended at 58M. The next milestone will be Nintendo Entertainment System at 61.91M, which I’d imagine it might have already reached as I write this.

Here’s further insight into how software did for the G&NS segment during fiscal 2023.

  • Unit sales reached 286.4M, up from 264.2M prior year.
  • Sony-made titles made up 39.7M of that, down from 43.5M.
  • Digital downloads comprised 70%, up from 67%.

The clear winners were a pair of sequels in October’s Spider-Man 2 and February’s Helldivers 2, the latter being PlayStation’s fastest-selling game ever amassing 2M units in 12 weeks. For context, 2022’s God of War Ragnarök sold 10M in 10 weeks.

Can’t forget about the likes of Blizzard’s Diablo IV and Capcom’s Street Fighter 6, plus the continued benefit of annualized sports and shooter titles, even on an off year with the lackluster Call of Duty: Modern Warfare 3.

Then, to a lesser extent, there was contribution from Square Enix’s Final Fantasy titles. In recent investor materials, Square Enix pointed out Final Fantasy 16 and Final Fantasy 7 Rebirth, both PlayStation exclusives, missed expectations (what else is new). With Square’s move to multi-platform, the days of third-party exclusives are clearly dwindling.

We also heard a bit from Sony on engagement, driven a lot by evergreen titles that dictate the market leader’s success here. As I mention in recent Circana U.S. sales recaps, tons of people play console primarily for experiences including Fortnite, Roblox, Minecraft and Grand Theft Auto V.

Sony reported that Monthly Active Users (MAUs) across PlayStation Network ended the year at 118M. While that’s no longer an all time high, which was achieved the prior quarter with 123M, it was still up 10M year-on-year.

The final stretch of fiscal 2023 was a fantastic one for Sony, pushing it to all-time revenue and generating higher income when it seemed like the year might be a down one for profitability.

A surprise multi-platform hit and PC’s contribution bumped up that profit growth, along with an all-time year for hardware shipments plus ongoing engagement in various legacy games.

Sony has recently backed off its live service push, to focus more on fewer titles in the space. A game like Helldivers 2 proves that all it takes is a single game capturing the zeitgeist to drive financial growth and keep an audience coming back for more.

It doesn’t hurt to have a simultaneous PC launch, a platform with a notoriously passionate user base. (Better or worse.)

I’ll quickly look ahead to Sony’s expectations for the coming year. Here’s the PlayStation forecast:

  • Revenue will be down 2% to $29.1B.
  • Operating profit to increase 7% to $2.15B.
  • PlayStation 5 shipments of 19M, down almost 2 million.

“As we enter the second half of the console cycle, we expect the number of new PlayStation 5 units sold to gradually decline,” management wrote in its remarks.

“However, by steadily maintaining and expanding the consistently increasing number of active users and user engagement, while also strengthening control over business costs, we believe that we will be able to steadily increase sales and profits from the PS platform going forward.”

Overall, I’m guessing G&NS will achieve these goals, and perhaps even increase the console shipment guidance to 20M. I’m expecting a lot of consumers upgrading and new buyers for Grand Theft Auto VI, expected to launch in calendar 2025.

Executives also reiterated that its new sci-fi multiplayer IP Concord will be out in this same time frame, as it aggressively moves to improve margins and incorporate the PC market. Could there be others launching by the fiscal year end?

Speaking of executives, Sony announced the replacement for exiting PlayStation boss Jim Ryan. Or should I say replacements, and both are internal hires. Hermen Hulst (my prediction back when the Ryan news broke) and Hideaki Nishino be co-leaders, heading up new respective groups within Sony Interactive Entertainment.

With that done, this concludes my latest recap. I recommend checking out socials for more coverage of earnings season and everything across the games industry landscape. Thanks for reading, be well!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥144.4.

Sources: Circana, Company Investor Relations Websites, Sony Interactive Entertainment.

-Dom