Recent rumors point to rising expectations in the games industry Sony (NYSE: NYSE:) could be rolling out a PS5 Pro, an upgraded PS5 model. In a Friday note, Citi analysts discussed what a PS5 Pro launch could potentially mean for Sony’s financial performance.
“While we believe the company makes frequent design changes to reduce costs, we have not made any specific assumptions about a PS5 Pro launch,” analysts said.
“If a PS5 Pro were to launch, we believe it could improve margins and increase revenues to some extent, although this would depend on the Cost of Goods Sold (CoGS) structure,” she added to.
According to Citi, several factors support the possible launch of a PS5 Pro.
First off, the timing of a potential PS5 Pro launch seems favorable, especially when you consider the challenges facing the PS5’s initial rollout, such as COVID-19 disruptions and chip shortages. These factors have delayed the market launch 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 launch, follows a natural product cycle, especially since Sony released the PS4 Pro three years after the PS4.
Furthermore, Sony’s decision to participate in the 2024 Tokyo Game Show after a five-year absence suggests that the company may be planning a major announcement. Also, the introduction of rival consoles could prompt Sony to counter this with an upgraded PS5 model.
Citi analysts believe that the PS5 Pro could also address profitability concerns, as both the original PS5 and the Slim variant have less favorable CoGS structures compared to previous PlayStation generations.
Therefore, the Japanese tech giant “could decide it’s worth launching an expensive Pro model to improve console margins, even if it means sacrificing sales volume,” analysts noted.
However, there are notable risks associated with launching a PS5 Pro.
Sony’s president has previously stated that there are no plans to change the PS5’s core semiconductor processes. While some adjustments to the semiconductors and system design are possible, these changes are unlikely to result in significant cost savings.
In addition, the introduction of a more expensive model could slow adoption rates due to lower sales volumes. The recent price increases for the PS5 in Japan also contradict the typical inventory reduction strategies that precede the launch of a new product.
Historically, console upgrade announcements have had a positive impact on Sony’s stock price.
“In our opinion, the announcement of the PS5 Pro could very well be well received,” analysts emphasized.
“If announced, our focus would be on improvements to CoGS structure and performance and the resulting opportunities for expanding game software.”
