Recent rumors have pointed to rising expectations in the gaming industry that Sony (NYSE:NYSE:) could release a PS5 Pro, an upgraded model of the PS5. In a note Friday, Citi analysts looked at what the launch of a PS5 Pro could mean for Sony’s financial performance.
“While we believe the firm makes regular design modifications to reduce costs, we have not made any specific assumptions about the launch of the PS5 Pro,” the analysts said.
“If a PS5 Pro were to launch, we believe it could improve margins and increase earnings to some extent, although it would depend on the cost of goods sold (CoGS) structure,” they added.
According to Citi, several factors support the possible launch of a PS5 Pro.
First, the timing of a potential PS5 Pro launch seems favorable, particularly considering the challenges the PS5 faced with its initial launch, such as COVID-19 disruptions and chip shortages. These factors have delayed market acceptance of the PS5 by one to two years compared to its predecessor, the PS4.
Releasing a Pro model now, five years after the original PS5 launched, aligns with a natural product cycle, especially since Sony released the PS4 Pro three years after the PS4.
Furthermore, Sony's decision to participate in the Tokyo Game Show in 2024, after a five-year absence, suggests that the company could be planning a major announcement. Furthermore, the introduction of rival consoles could prompt Sony to fight back with an improved PS5 model.
Citi analysts believe the PS5 Pro could also address profitability concerns, as both the original PS5 and its Slim variant have less favorable CoGS structures compared to previous PlayStation generations.
The Japanese tech giant “may therefore decide that it is worth launching a high-priced Pro model to improve console margins, even if it means sacrificing sales volume,” the analysts noted.
However, there are notable risks associated with the launch of a PS5 Pro.
Sony's president has previously stated that there are no plans to alter the PS5's core semiconductor manufacturing processes. While some tweaks to semiconductors and system design are possible, these changes are unlikely to result in significant cost reductions.
Additionally, the introduction of a more expensive model could slow adoption rates due to lower sales volumes. The recent PS5 price hikes in Japan also contradict typical inventory reduction strategies that precede the launch of a new product.
Historically, console update announcements have had a positive impact on Sony's stock price.
“We believe the PS5 Pro announcement is likely to be well-received,” the analysts noted.
“If announced, we will focus on improvements to the structure and performance of CoGS and the resulting opportunities to expand the gaming software.”
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);