Sony Group (SONY) is scheduled to report first-quarter fiscal 2021 earnings on August 4, before the market open.
The Japanese multinational operates a diverse business portfolio, including electronics manufacturing for professionals and consumers, film production, and videogame publishing.
Over the past year, shares of the company were up 28.5%, trading above $104. A solid Q1 result might propel the stock price upward, so let’s take a closer look at what analysts on the Street are expecting.
Fiscal Q1 Expectations
For Q1, the Street expects Sony to report adjusted EPS of $1.03 and revenues of $19.09 billion. (See Sony Dividend Date and History on TipRanks)
Sony Group’s Prior Quarter Snapshot
In the last-reported fourth quarter of fiscal 2020, Sony reported solid results, driven by strong sales numbers for its flagship PlayStation 5 video game console.
Quarterly total operating revenues increased 27% year over year to ¥2,220.4 billion ($20,967.2 million) in the fourth quarter. Sales at all segments, other than Pictures, grew.
On a GAAP basis, Sony’s net income surged 746.3% year over year to ¥107 billion in the fiscal fourth quarter.
Factors to Note
The Japanese electronics and entertainment giant generates revenues from six reportable segments, comprising Game & Network Services (G&NS), Music, Pictures, Electronics Products & Solutions (EP&S), Imaging & Sensing Solutions (I&SS), and Financial Services.
Let’s look at how these segments are anticipated to perform this quarter.
It would not be an exaggeration to say that videogame and streaming services have cashed in on the pandemic. Fortunately, Sony is no exception to this trend. The company’s Games & Network Services (G&NS) segment, which includes the PlayStation Plus subscriber network, performed exceptionally well last year.
The company sold 3.3 million PS5 consoles in the fiscal fourth quarter. It witnessed strong sales in the G&NS segment, driven by the launch of the PS5 and related peripherals and accessories, as well as a boost to PlayStation Plus subscriber numbers.
Given the huge size of the PS5, Sony recently launched a lighter version called Digital Edition, which has been a hit with gamers.
Now, as the economy recovers from the COVID-19 outage, investors will be monitoring to see whether the Japanese consumer giant can increase in subscribers for network services.
Let’s see what management has to say about it.
As Covid regulations soften around the world and in-home demand for content eases, management remains cautious about the coming year, stating, “We don’t see the significant increase in subscribers for network services like we saw last fiscal year from stay-at-home demand.”
Next is Music. This division’s sales increased 26.5% year over year to ¥267.4 billion.
The music segment is expected to have performed well in the upcoming quarter, owing to an increase in recorded music streaming revenues and the phenomenal success of Demon Slayer, among other factors.
Recently, Sony’s subsidiary – Sony Music Entertainment – acquired 100% of the shares and related assets of certain subsidiaries of Kobalt Music Group Limited. Such developments are likely to have a positive impact on Sony’s top-line growth in the near future.
Next, the company’s Pictures division, which includes film and television, has not performed well in the past quarters. Theater closures and a lower volume of TV program sales, both due to the impact of COVID-19, have taken a toll in recent months.
In the last reported quarter, sales dropped 39.2% year-over-year and operating income fell considerably to ¥1.8 billion from ¥23 billion in the prior year quarter.
This film unit, however, is predicted to perform well this year, thanks to the reopening of theatres and resurgence in TV licensing.
For fiscal 2021, Sony Pictures Entertainment is forecasted to see a 50% increase in sales but only a 3% jump in profits, due to an increase in cost to support a number of planned theatrical releases.
Sales of the Electronics Products & Solutions (EP&S) segment came in at ¥435.2 billion, up 19.8% year over year. The segment is expected to perform well, driven by an increase in sales of televisions due to an improvement in the product mix.
Focused on image sensors, Sony has been making efforts to expand the sales of its Imaging & Sensing Solutions (I&SS) segment. The company expects to see growth in areas such as automotive cameras, security cameras, and factory automation. In the last reported quarter, sales were up 0.5% year over year to ¥232.3 billion.
Recently, the company announced the impending release of IMX585. This is a 1/1.2-type 4K-resolution Complementary Metal Oxide Semiconductor image sensor specially designed for security cameras. In a single exposure, it provides nearly eight times the range of a standard model.
With these new releases, the I&SS segment should continue to perform well in the near future.
Analyst Recommendations
Ahead of the fiscal first-quarter earnings announcement, Morgan Stanley analyst Masahiro Ono upgraded the stock to Buy from Neutral, and increased the price target to ¥16,000 from ¥9,500.
Ono believes that the strength in the animation business will boost the Pictures segment’s profitability in the medium to long run. The stock is undervalued when compared to its peers and has “substantial room for it to expand,” added the analyst.
On May 27, Oppenheimer analyst Martin Yang reiterated a Buy rating on the stock, with a price target of $135. This implies 29.3% upside potential to current levels.
Yang remains optimistic about Sony’s fundamentals, stating, “We are incrementally positive on management’s ability to maintain profitable growth for the core business, without losing sight of new, emerging growth opportunities in dynamic end markets.”
The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating, based on 2 Buys. The average SONY price target of $135 implies 29.3% upside potential from the current levels.
TipRanks data shows that financial blogger opinions are 95% Bullish on SONY, compared to a sector average of 71%.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
