Sony Earnings Win Boss Battle With Coronavirus -- Heard on the Street

By Jacky Wong

Japanese electronics and entertainment giant Sony hit a new high score as people stuck at home splurged on its games. The next level already looks within reach: The company's new videogame console arrives later this year.

Sony on Tuesday reported an operating profit for the quarter ended in June that was 63% higher than analysts' estimates on S&P Global Market Intelligence. People holed up at home bought more games, which boosted sales at Sony's game segment by 32%. And since many of them downloaded games, instead of buying physical copies, that meant higher margins: Sony's game division reported a record Yen124 billion ($1.17 billion) operating profit for the quarter, 68% higher than a year earlier.

The strong game sales were enough to offset weakness in Sony's other segments, which were hurt by Covid-19. Its consumer-electronics sales were in the red as people bought fewer televisions and cameras. Sony's image-sensor division, which counts Apple as a customer, also saw lower profits as smartphone sales slowed. Theater closures hurt its movie business, but that was partly offset by higher licensing revenue from television.

Despite the strong quarter, Sony is cautious about its near future. It expects operating profit this fiscal year, ending next March, to drop by 27%, mostly because of weaker image-sensor sales. But that may be too conservative: The company forecasts no profit growth for its game segment. Sony expects marketing costs for its new PlayStation 5, likely to launch during the holiday season, to hurt margins. But that could be offset by higher game sales, especially since more people will likely continue to buy games online. Digital sales accounted for nearly three quarters of total game sales last quarter, compared with about half for the last fiscal year. PlayStation Plus, a subscription-based service offering gamers discounts and other perks, has 45 million subscribers as of June--likely a loyal user base.

The company is also trying to beef up its content to become an integrated entertainment platform across games, movies and music. Sony acquired stakes in Epic Games, the maker of popular game Fortnite, and Chinese online entertainment platform Bilibili earlier this year.

Management's cautious outlook notwithstanding, Sony could continue to hit high scores.

Write to Jacky Wong at jacky.wong@wsj.com

(END) Dow Jones Newswires

August 04, 2020 07:22 ET (11:22 GMT)

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