6758: Games And Subscription Content Will Drive Future Earnings Re-Rating

Analysts have nudged their price target on Sony Group modestly higher, reflecting a roughly 1 percent increase in fair value to about ¥5,150. They point to upgraded ratings, better than expected quarterly results, and growing confidence in the company’s games, music, and subscription businesses.

Analyst Commentary

Bullish analysts are increasingly constructive on Sony Group, citing a stronger earnings trajectory and more resilient demand across core content and subscription businesses. Recent target price increases reflect confidence that management can deliver above-consensus growth while unlocking further value from its diversified portfolio.

Bullish Takeaways

Upgrades to Buy and Outperform ratings are driven by higher operating profit forecasts and sum of the parts valuations that assume sustained momentum in games, anime, and music, supporting further multiple expansion from current levels.
Stronger than expected quarterly results, with beats on both revenue and earnings, have reinforced the view that execution is improving and that guidance raises are credible rather than one off.
Forecasts for renewed growth in PS Plus and continued strength in USD recorded music streaming revenue suggest that recurring digital income can provide a more visible and higher margin earnings base.
Contract renewals with major digital service providers in music underpin expectations for steady pricing power and volume growth, which bullish analysts see as underappreciated in current valuation models.

Bearish Takeaways

Bearish analysts caution that recent target price hikes already incorporate optimistic assumptions on subscription reacceleration, leaving limited room for error if PS Plus growth falls short.
There is concern that reliance on continued strength in music streaming and premium content could face cyclical or competitive pressures, which would challenge the durability of current margin expansion.
Some more cautious views highlight that the rerating case depends on sustained outperformance of games, anime, and music simultaneously, raising execution risk if any segment underdelivers.

What's in the News

Sony raised its full year fiscal 2026 guidance, now expecting JPY 12 trillion in sales, JPY 1.43 trillion in operating income, and JPY 1.05 trillion in net income, with tariff impacts from recent U.S. policy changes already included in the forecast (company guidance).
The company announced a new share repurchase program of up to 35 million shares, or 0.59% of outstanding stock, totaling JPY 100 billion, alongside continued execution of earlier buybacks that have already retired over 63 million shares (buyback announcements).
Sony declared an interim dividend of JPY 12.50 per share for the six months ended September 30, 2025, with payment scheduled to begin on December 5, 2025 (dividend announcement).
Sony Pictures secured screen rights to the Labubu doll brand, with plans to produce a movie and build a broader franchise around the IP (Hollywood Reporter).
Sony Bank has applied for a U.S. banking license and is exploring the launch of a dollar backed stablecoin as it expands its financial services footprint (Nikkei).

Valuation Changes

Fair value was nudged higher from approximately ¥5,077 to about ¥5,151, reflecting a modest upward reassessment of intrinsic value.
The discount rate rose slightly from about 6.55% to roughly 6.60%, implying a marginally higher required return in the valuation model.
Revenue growth was revised to a slightly less negative trajectory, improving from around negative 9.43% to about negative 8.89% year over year.
The net profit margin was effectively unchanged, edging down marginally from about 10.21% to roughly 10.21% in the updated forecasts.
The future P/E increased modestly from roughly 26.8x to about 27.2x, indicating a small expansion in the multiple applied to forward earnings.

Expansion in digital services and proprietary content is increasing Sony's stable, high-margin, recurring revenue while improving global entertainment monetization and margin profile.
Focus on advanced sensor technology, content-driven devices, and supply chain agility is driving resilient topline growth, operating margin improvement, and profitability stability.
Increasing geopolitical and competitive pressures across hardware, imaging, consumer electronics, gaming, and financial services threaten profitability, margins, and revenue stability for Sony Group.

Catalysts

About Sony Group

Designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets in Japan, the United States, Europe, China, the Asia-Pacific, and internationally.What are the underlying business or industry changes driving this perspective?

Ongoing expansion and robust engagement in Sony's PlayStation ecosystem, including increased monthly active users and growth in network service revenue, indicate a shift toward more stable, high-margin, recurring digital income streams, supporting sustained revenue and operating margin expansion.
The accelerating monetization of proprietary content IP-including music catalogs, blockbuster anime (e.g., Demon Slayer), and cross-platform franchises-together with strategic partnerships (e.g., Bandai Namco), positions Sony to capitalize on global entertainment demand and improve both revenue growth and margin profile.
Sony's leadership in advanced sensor technology is driving strong growth in the Imaging & Sensing Solutions segment; higher unit prices from the adoption of larger, value-added sensors and demand in emerging applications (e.g., mobile, video) are expected to support topline growth and earnings resilience, particularly as connected/AI-enabled devices proliferate.
The company's shift toward creation-centric devices and solutions (e.g., digital cameras over traditional TVs) and greater focus on content and service-based business models are improving the revenue mix toward more resilient, recurring, and higher-margin streams, positively impacting profitability and cash flow stability.
Sony's proactive supply chain diversification and rapid adaptation to tariff challenges have mitigated short-term cost risks and reduced expected tariff-related profit impacts, helping to defend operating income and margins against industry headwinds.

Sony Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Sony Group's revenue will decrease by 0.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 9.1% today to 9.9% in 3 years time.
Analysts expect earnings to reach ¥1265.8 billion (and earnings per share of ¥213.86) by about September 2028, up from ¥1190.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥1527.0 billion in earnings, and the most bearish expecting ¥945.8 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.1x on those 2028 earnings, up from 20.1x today. This future PE is greater than the current PE for the US Consumer Durables industry at 11.0x.
Analysts expect the number of shares outstanding to decline by 0.51% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.41%, as per the Simply Wall St company report.

Sony Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Intensifying geopolitical tensions, U.S. tariff uncertainties, and supply chain realignment (including recent and potential future semiconductor tariffs) create ongoing operating cost pressures and margin risk, particularly as Sony's key hardware segments are forced to diversify production locations and absorb shifting regulatory environments-this threatens both near-term and long-term profitability.
Increased competition in imaging and sensor markets-including customer shifts (e.g., major North American clients seeking alternative suppliers, such as Korean firms), and broader commoditization trends-jeopardizes Sony's pricing power and leadership in high-margin technology, pressuring revenue growth and net margins if market share declines.
Sony's traditional consumer electronics business (notably TVs and smartphones under ET&S) faces structural challenges: shrinking unit sales, aggressive price competition, and risks of quality control (e.g., Xperia recall), driving potential sustained revenue erosion and weakening gross margins over time.
Heavy dependence on blockbusters and live service hits in gaming and entertainment introduces volatility; a narrow pipeline or underperformance (as with delayed or underperforming titles like Marathon) could destabilize recurring revenue, while escalating R&D and content costs amid fierce competition compress long-term operating leverage and net earnings.
Rising interest rates and regulatory changes in the Financial Services segment necessitate ongoing capital adjustments and risk management; partial spin-off and market volatility in insurance products may heighten earnings uncertainty and limit cash flow stability for the group as a whole.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of ¥4638.75 for Sony Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥5350.0, and the most bearish reporting a price target of just ¥4000.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥12813.1 billion, earnings will come to ¥1265.8 billion, and it would be trading on a PE ratio of 26.1x, assuming you use a discount rate of 6.4%.
Given the current share price of ¥3990.0, the analyst price target of ¥4638.75 is 14.0% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Have other thoughts on Sony Group?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

6758: Next Console Advancements And Gaming Success Will Drive Margins Higher