Last week, Sony Group announced that it’s cutting its PS5 sales forecast while highlighting a major problem: its PlayStation division’s operating profit. Despite record revenues, Sony’s gaming business is experiencing low profit margins, leading investors and analysts to express concerns. To make matters worse, the reduced PS5 sales forecast cost Sony $10 billion in stock value.
What’s going on with PS5 sales and PlayStation’s profit?
Despite a higher price tag than what the PS5 launched with, Sony set an ambitious sales target for the console and as of December 31, 2023, the PS5 is slightly behind that target. As a result, Sony cut down its forecast while announcing that it expects PS5 sales to slow down as it enters the latter part of its life cycle.
As reported by CNBC, the news caused Sony’s shares to come tumbling down, wiping billions off of its stock. However, it’s the PlayStation profit margins that are a bigger problem than slowing PS5 sales. Sony acknowledged as much when CFO Hiroki Totoki said that PlayStation needs to improve its profit margins.
“Their [PlayStation’s] revenue on digital sales, add-on-content, digital-downloads are at all time highs, and yet their margins are at decade-lows,” Jeffries’ equity analyst Atul Goyal told CNBC. “This is just not acceptable.” Analyst Serkan Toto pointed out that games like Spider-Man 2 are costing too much to make, resulting in a “significant impact on their gaming margin” despite robust sales.
