Sony (SNE) has ramped up production on its upcoming PlayStation 5 (PS5) video game console to double the amount of what it originally planned for in its holiday season release.
According to a July 15 Bloomberg report, the console-maker has reacted to the uptick in COVID-19 cases throughout the world by calling for a production boost to as much 10 million units. The understanding from Sony is that more people will be possibly restricted to their homes which will drive consumers to its ecosystem of games and consoles.
A Sony spokesperson did not respond to the Bloomberg report when contacted, however, according to a range of parts suppliers, the company has communicated its production plans for a Q4 release. Some say logistics may hamper sales near the end of the year.
In light of the pandemic, Sony’s competitor, Nintendo (NTDOY) has experienced increasing demand for its portable Nintendo Switch console amidst supply constraints. With government lockdowns in Malaysia and the Philippines, a shortage resulted in parts that led to overall delays in production. Third-party sellers cashed-in on the moment by selling the game device for more than double the price on eBay and Amazon.
Ace Research Institute analyst Hideki Yasuda told Bloomberg on May 12, “The inventory may recover in the summer, but we may see shortages again toward the year-end because Nintendo wouldn’t be able to produce enough units for the shopping season.”
The following day on May 13, Sony released its Q4 fiscal report, saying that regarding the launch of PS5, “factors such as employees working from home and restrictions on international travel have presented some challenges in regards to part of the testing process and the qualification of production lines.” The report added, “Development is progressing with the launch of the console scheduled for the 2020 holiday season.”
On June 11, Sony unveiled the PS5 along with its game lineup on a live-streamed show. Oppenheimer analyst Andrew Uerkwitz reacted on June 12, saying, “Expectations were high before the event as it is the first consumer-oriented public showcase of PS5. We believe it delivered just enough to meet elevated expectations.” He added, “The striking console plus a strong slate of exclusives gives us confidence Sony is well-positioned for strong gaming growth over the next several years. The last outstanding data point (and it’s important) price was not given.”
The analyst assigned a Buy rating on Sony’s stock and set his price target at $70 which implies a downside potential of 6%.
Merrill Lynch analyst Mikio Hirakawa noted on July 13 that the PS5 will probably be priced at $499 which he says is the market consensus estimate on the unit. He reiterated a Buy and a price target of $80.24 which suggests 8% upside potential.
Overall, 3 analysts assign Buy ratings, 2 Hold ratings, and no Sell ratings, giving SNE a Moderate Buy Street consensus. The average analyst price target stands at $75.12 (1% upside potential), with shares already up 10% year-to-date. (See Sony’s stock analysis on TipRanks).
