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Abu Dhabi, UAESaturday 17 November 2018

Sony easily outguns Nintendo as earnings top estimates

Nintendo misses analyst forecasts as Switch fails to gain while Sony's PlayStation proves its enduring strength

Sony video game Call of Duty players at the Tokyo Game Show. The firm easily topped earnings expectations. AFP
Sony video game Call of Duty players at the Tokyo Game Show. The firm easily topped earnings expectations. AFP

Sony upgraded its earnings outlook for a second straight quarter, thanks to a plethora of hit video-game titles that are boosting the PlayStation business, as its Japanese rival Nintendo fell short of forecasts.

Sony's operating profit for the current fiscal year through March will be ¥870 billion (Dh28.35bn), up from the prior forecast of ¥670bn, the Tokyo-based company said on Tuesday. Revenue will be ¥8.7 trillion, compared with the previous outlook for ¥8.6tn issued in July.

The optimism is being fuelled by growth in the PlayStation division, where last month’s Spider-Man set a new sales record for a Sony-developed video game. With third-party releases in the December quarter also setting records, the business is providing much-needed stability during a year of uncertainty for smartphone demand, according to Damian Thong, an analyst at Macquarie Group.

“This will be the best year for the PlayStation for first-party games and overall profitability of the platform,” Mr Thong said prior to the earnings release.

About half of the increase in outlook, about ¥110bn, is being fuelled by a one-time accounting gain from Sony’s purchase earlier this year of EMI Music Publishing.

Operating income was ¥239bn for the September quarter, the Tokyo-based company said on Tuesday, topping analysts’ average estimate for ¥205bn. Revenue was ¥2.2tn, compared with the prediction for ¥2.1tn.

Operating profit at the PlayStation division rose 65 per cent from a year ago to ¥91bn for the September quarter, accounting for a third of all company income. Sales for the September quarter climbed 27 per cent to ¥550bn.

Sony had already lifted its forecast for the division in July thanks to PS4 exclusive God of War, which in April sold a record 3.1 million copies during its first three days. Last month’s Spider-Man, also a PS4 exclusive, topped that with 3.3 million copies over an equal period of time, resulting in back-to-back outlook upgrades.

The December quarter also looks strong, thanks to one of the best third-party lineups in the PlayStation’s history. Analysts predict record sales of Red Dead Redemption II, released last Friday, after it became the best-reviewed game of the year, according to Metacritic. This month’s Call of Duty: Black Ops set a new PlayStation record for first day digital sales. Other big titles expected this quarter include Battlefield V, Fallout 76 and Just Cause 4.

Fortnite, a free-to-play game, also delivered a boost during the quarter as spending on in-game items - with revenue shared with Sony - jumped during the school holidays. Introduced last year, it has become this year’s hottest title, especially popular with teenagers.

“Fortnite delivered explosive profits over the summer months. That will contribute to Sony’s top line in a significant way,” said Hideki Yasuda, senior analyst at Ace Research Institute.

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The chip division’s operating profit fell 3 per cent from a year earlier to ¥48bn, on sales of ¥254bn. While the latest iPhones did not include any models with three cameras, newer phones from Chinese makers like Huawei Technologies are adopting the idea. Sony is the market leader in image sensors, chips that convert light into digital bits.

Nintendo’s quarterly results, meanwhile, missed analyst estimates as a lack of hit games led to the slowest revenue growth since the launch of its Switch console in March 2017.

The Kyoto-based company reported operating profit of ¥30.9bn during the July-September quarter, below analyst estimates for ¥37.9bn. Quarterly revenue was ¥221bn during the period, lower than market projections for ¥232bn. It sold 3.2 million Switch units during the period, up from 2.9 million a year ago. The company maintained its full-year forecasts.

The slowdown is unnerving investors, who had sent Nintendo shares 15 per cent lower this month, amid a broader sell-off in tech stocks. The Switch saw no new major titles during the September quarter, while older and indie games weren’t enough to sustain momentum. That’s raising worries about Nintendo’s ability to reach its target of 20 million Switch units this fiscal year.

“It was a quiet quarter without many big releases from Nintendo,” Hideki Yasuda, senior analyst at Ace Research Institute, said prior to the release. “Reaching their Switch target really depends on the holiday quarter, especially the new Super Smash Bros game.”

Nintendo didn’t change its full-year outlook for operating profit, revenue, and Switch hardware and software sales.

“From the beginning we decided on a target that would be challenging to reach, not easy,” Nintendo president Shuntaro Furukawa said after the results. “The holiday season battle begins now.”

Nintendo sold 24.2 million software units during the quarter, up from 13.9 million a year ago as a lack of big first-party titles was offset by popular titles from outside publishers. The Switch has become a haven for re-releases of older third-party games like Dark Souls and indie hits including Overcooked! 2. In total, the device has seen nearly 1,000 releases so far this year, up from about 400 in 2017, according to fan site Perfectly Nintendo.

Still, remakes and indie titles aren’t compelling enough for most people to buy a new console. The Switch is missing out on one of the strongest third-party lineups in years, including blockbusters like Red Dead Redemption 2 and Call of Duty: Black Ops 4, which won’t be available on Nintendo’s device due to its limited graphical power. Instead, Nintendo will rely on a pair of Pokemon titles in November and the latest Super Smash Bros game in December to drive the Switch during the holiday quarter.

Smartphone games revenue in the quarter rose 9 per cent from a year ago to ¥9.7bn. Its newest mobile title Dragalia Lost was released on September 27, resulting in minimal contribution to the quarter. Nintendo has previously said it will release another smartphone title, Mario Kart Tours, sometime before April.

Revenue from the seven year-old 3DS continued falling sharply, dropping 65 per cent to ¥16.4bn in the September quarter from a year ago. In May, Pokemon Co announced it would no longer release games on the handheld device, moving the best-selling franchise to the Switch.