Sony announced that its latest gaming console, PlayStation 5, or PS5, will be on sale from Nov. 12 at a price of US$ 499, or US$ 399 for the digital version without the optical disc drive. As these details are within our expectations, we retain our view that PS5 will make a solid launch for this holiday season. Although we think that the game console competition with Xbox Series X/S by Microsoft will intensify, we believe Sony will be able to retain its user base for three reasons. First, Sony’s first party exclusive game pipeline is more attractive, second, the US$ 399 price for the digital version looks competitive, and third, the number of PS Plus subscribers (45 million by the end of June) accounts for approximately 40% of PS4 users. We retain our fair value estimate of JPY 8,000 and view Sony’s shares as currently fairly valued.
Sony has established a strong first-party game portfolio over the past few years, such as Uncharted 4, Horizon Zero Dawn, Gran Turismo Sport, God of War, Marvel’s Spider-Man, The Last of Us (part 1 and 2), and Ghost of Tsushima, and Sony intends to leverage these IP assets to strengthen its ecosystem. Marvel’s Spider-Man Miles Morales will be one of the launch titles, and it has been announced that God of War: Ragnarok is to be sold in 2021. The development of Gran Turismo 7 for PS5 was announced at the June event, which should attract millions of users. In addition, subscribers of PS Plus will get a bunch of PS4 classics, including the popular titles mentioned above. Overall, PS5 users will be able to enjoy many of Sony’s first-party titles from day one.
While we recognize the US$ 299 price of the Xbox Series S will be attractive for light gamers, PS5’s direct competitor is Xbox Series X, which costs US$ 499. Hence, we believe that the PS5 digital version (US$ 399) should be an attractive choice for core gamers. Owing to the increasing component costs, the margin from hardware sales should be thinner than PS4, but we believe Sony intends to compensate for thinner hardware margins with the higher margins from digital games sales. We thus believe that launch of the digital version is a good strategy, as it enables competitive console pricing without significantly impairing its profitability.
Sony’s share price dropped 2.4% on Tuesday as Bloomberg reported that Sony had cut its PS5 production plan to 11 million from 15 million for this fiscal year, owing to the low production yield of its chips. Sony officially denied this the following day and mentioned that the PS5 production plan is unchanged. Even if this is true and Sony ships 11 million PS5 consoles for this fiscal year as a result, we are not concerned as the shipment number will be still much larger than that of previous generations.
