6758: Entertainment Subscriptions And Franchises Will Drive Future Earnings Re Rating

Our analyst price target for Sony Group has edged up from ¥5,146.80 to ¥5,191.60 as analysts factor in higher operating profit forecasts tied to renewed growth expectations for PS Plus, sustained music streaming momentum, and the perceived strength of Sony's combined games, anime, and music franchises.

Analyst Commentary

Bullish analysts are nudging price targets higher for Sony Group, pointing to what they see as improving fundamentals in games, music, and subscription services, along with stronger than expected recent results.

Bullish Takeaways

Several bullish analysts have raised price targets into the ¥5,300 range and to US$34, reflecting higher operating profit forecasts and sum of the parts valuations that place more weight on games, anime, and music.
Renewed growth expectations for PS Plus and recurring subscription revenues feed into a view that Sony can keep monetizing its large user base, which supports higher earnings power in their models.
Sustained music streaming momentum, helped by contract renewals with digital service providers and what one firm called the strongest US dollar recorded music streaming revenue in two years, is seen as reinforcing the value of the music catalog.
The combination of games, anime, and music is described by some bullish analysts as a "triple threat," with the view that these content franchises occupy solid positions that justify a richer multiple on the entertainment businesses.

Bearish Takeaways

Even as targets move higher, prior Neutral and Peer Perform ratings suggest some analysts were cautious about execution risk around PS Plus and whether renewed growth can be sustained beyond the current forecast horizon.
Stronger recent results and guidance tied to music streaming set a higher bar, so any slowdown in contract renewals or streaming revenue momentum could challenge the upgraded earnings assumptions that support current price targets.
The reliance on a sum of the parts framework means value is sensitive to how each segment is assessed, so any underperformance or weaker sentiment in games, anime, or music could weigh on the implied valuation.
With multiple upgrades and higher targets already in place, the scope for further re rating from current levels may depend on consistent delivery against these raised profit forecasts and subscription growth expectations.

What's in the News

Sony Pictures has secured screen rights to the Labubu doll brand, with plans to develop a movie and potential franchise based on the character (Hollywood Reporter).
Sony Pictures Television and CBS resolved a court dispute over the distribution of "Jeopardy!" and "Wheel of Fortune." Under the agreement, Sony is set to gradually take over more distribution, marketing, and promotion responsibilities, while CBS will keep U.S. distribution through the 2027-2028 season and handle ad sales through 2029-2030 (Hollywood Reporter).
A Sony Interactive Entertainment manager said the PlayStation Portal has become the most widely used device for PS5 Remote Play and described community response as overwhelming compared with initial expectations for the dedicated handheld (TechRadar).
Sony Bank has applied for a U.S. banking license and is considering issuing a dollar backed stablecoin as part of its entry into that market (Nikkei).
Sony AI released the Fair Human Centric Image Benchmark, a publicly available, globally diverse dataset designed to help evaluate fairness and bias in human centred computer vision models across tasks such as face detection, pose estimation, and visual question answering, following a multi year development effort (company announcement).

Valuation Changes

Fair Value: analyst fair value estimate has risen slightly from ¥5,146.80 to ¥5,191.60.
Discount Rate: the discount rate has edged down slightly from 6.58% to 6.56%.
Revenue Growth: the modeled long term revenue growth decline has moderated, moving from a 7.27% decline to a 4.25% decline.
Net Profit Margin: the projected net profit margin has nudged up from 10.22% to 10.24%.
Future P/E: the assumed future P/E multiple has inched higher from 27.11x to 27.25x.

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.

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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.

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