Sony’s profit margin has seen a year-over-year decline

As previously reported, Sony has revised its sales forecast for the PlayStation 5 in the fiscal year 2024, reducing the target from 25 million units to 21 million units. This adjustment led to a significant drop in Sony’s stock price, with the company’s market capitalization evaporating by approximately $10 billion.

According to a report by wccftech, Sony’s profit margin has also seen a year-over-year decline. Last quarter, Sony’s profit margin was merely 6%, compared to 9% in the same period last year, and around 12% to 13% before 2022.

Analyst Atul Goyal from Jefferies finds the continuous decline in Sony’s profit margins perplexing, as he believes recent trends in the gaming industry should be favorable to Sony. These trends include the widespread adoption of digital gaming (eliminating the need to pay fees to retailers), the rise of game streaming services, and the popularity of subscription-based memberships for gaming consoles. These factors, he argues, should have the potential to elevate Sony’s profit margins to 20%. Additionally, Serkan Toto, an analyst from Kantan Games, suggests that the new model of the PS5 could reduce hardware manufacturing costs, thereby improving Sony’s profit margins.

However, wccftech believes that both analysts have overlooked the impact of rising game development costs. It has been reported that the production cost of “Marvel’s Spider-Man 2” was three times that of its predecessor, with total costs exceeding $300 million. Furthermore, recent turmoil in PlayStation’s management, leading to the cancellation of several service-oriented games, has resulted in significant resource wastage.

Nevertheless, Sony is acutely aware of the gravity of these issues. In a recent interview, the newly appointed COO and President of Sony, Hiroki Totoki, expressed that the company is actively seeking solutions to these challenges, hoping to find the right strategy to enhance its profit margin performance.