On Monday February 3, Sony Corporation (NYSE: SNE) announced total revenue results that were flat, but down significantly in the video game division.  Ironically Sony stock rose on the news.  This was in sharp contrast to Nintendo that a few days before had seen its stock drop after reporting a significant revenue increase.

The recent third fiscal quarter for Sony ended on December 31, 2019.  Overall revenue in the quarter was up 3% over Q3 2018.  However, net income was down 46% versus Q3 2018.

The performance of the Games and Network Services Division was worse.  For Q3 2019, revenue was down 20% over Q3 2018.  For the nine-month period total revenue in the division was down 15%.

During the earnings call CFO Hiroki Totoki emphasized the long-term potential of the game business as a major factor.  The emphasis was that the PlayStation 4 business is not down as much as it would normally be because of growth in the ongoing network services division.

In other words, services like PlayStation Plus are keeping consumers engaged and should help ease a smooth transition to PlayStation 5. PlayStation Plus subscribers reached 39 million with cumulative PlayStation 4 hardware units 109 million.

Investors reacted by pushing Sony stock up 3.5% on February 4.  This was the highest level it had been since the first part of the century and the PlayStation 2 launch way back in 2001.  However, Sony investors are fickle and early on February 5, most of those gains had been erased.

It is clear Sony is at a crucial crossroads.  The game business remains a potentially lucrative but highly uncertain growth engine.  Management turmoil in the game division, coupled with increased competition means the PlayStation 5 could struggle to reach the peaks of the highly successful PlayStation 4.

The next few months will be critical for Sony.  Investors are watching every move.  If Sony is successful with the PlayStation 5, the stock should look like a bargain in coming years.  However, if the new system disappoints lookout.