Sony profits plummet 36% as gaming earnings slide in FY19

Sony's Fiscal Year 2019 results show a marked decrease in PlayStation hardware adoption and a drop in software sales, but digital ratio is on the rise due to COVID-19.

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Sony's latest financials reveal key earnings drops in a number of areas, resulting in a 36% decrease in overall profits and other performance metrics. The results saw drops in yearly revenues, operating income, and overall profits,

• Net Revenues - $75.987 billion (¥8.259 trillion), down 5% YoY
• Operating Income - $7.77 billion (¥845.459 billion), down 5.44% YoY.
• Profit - $5.355 billion (¥ 582.191 billion), down 36% YoY

Profits are down 36% YoY due to key segment slides like gaming, music, and EP&S, all of which saw net revenue drops. Sony pulled in $5.355 billion in profits attributable to stakeholders in FY19, as compared to $8.262 billion last year.

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Insofar as gaming, earnings were down year-over-year across the board except for network services, which saw a slight uptick by 3.2% from last year.

Gaming's total net revenues pulled in over $18.19 billion in FY19, accounting for roughly 24% of Sony's total earnings.

Sony attributes a portion of game segment drops to the absence of big hits like God of War and Spider-Man which were released the year prior, but most of the impact was due to lower software and PS4 hardware sales, as well as foreign exchange rates (1 USD = 110.9 yen in 2018 versus 1 USD = 108.7 yen in 2019).

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Sony's gaming performance in FY19

• Games and Network Services - $18.19 billion (¥1.977 trillion), down 14% YoY
• Hardware - $3.42 billion (¥371.91 billion), down 29% YoY
• Game Software - $10.38 billion (¥1.126 trillion), down 12.75% YoY
• Network services - $3.1 billion (¥337.265 billion), up 3.2% YoY
• Peripherals (PSVR/controllers sales) - $1.3 billion (¥141.607 billion), down 13%

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Hardware made up 18% of total segment revenues, and games made over half of earnings at 57% of total G&NS earnings. Sony announced the PlayStation 4 has sold 110.4 million units to date, and the console moved 13.6 million sales in FY19, down from Sony's original 15 million sales forecast.

Sony sold 245 million PS4 games in FY19, and 51%, or 125 million of them were digital downloads. This is reflected by the massive digital earnings skew in game sales revenues. Physical Software made up 10.5% of total game sales earnings in FY19, and digital made up 89.5% of total game sales.

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The proportion of digital-to-physical jumped in Q4'19 thanks to coronavirus stay-at-home mandates. By the end of FY19, 51% of total game sales for the year were from digital as compared to the 37% in FY18.

• Physical Software - $1.07 billion (¥116.473 billion). down 39% YoY
• Digital software & DLC - $9.29 billion (¥1.010 trillion), down 8.34% YoY

Network services were up 3.2% as PlayStation Plus subscribers grew steadily to 41.5 million as of Q4, and network services accounted for 17% of segment revenues.

FY2020 Outlook

Sony's total-year FY2020 outlook isn't so hot. Coronavirus is expected to take a toll throughout Q1-Q2, and may lead to weaker exchange rates due to economic situations. The company expects yen exchange rates to drop quite a bit to 105 yen to the dollar. Sony expects operating income for all segments to slide below FY19 levels, which saw slides in gaming, music, and financial services.

Total-year operating income is expected to drop by at least 30% from FY19 levels, which would deliver roughly ¥ 5.91 billion, or about $53.363 million based on the 105 yen conversion rate.