It'd actually the opposite. Bigger margins keep the company afloat and high margins companies will always skew to higher market caps.
All that humongous Sony revenue and fanbase got beat by Nintendo's profits despite having a smaller user base, less microtrans and sub fees and much less third party digital royalty cuts. And PS4 had double the length of time vs. Switch.
These are trailing 12 months data so a little outdated as some of them reported data lately, but close enough. From Yahoo Finance.
- MS Corporation = about $153 billion US sales = $51 billion sales = 33% margin = $1.8 trillion market cap
- Sony Corporation = about $82 billion US sales = $9 billion profits = 11% margin = $122 billion market cap
- Nintendo Corporation = about $16 billion US sales = $4 billion profits = 25% margin = $75 billion market cap
MS has less than double the sales of Sony, but with triple the margin has a market cap about 14x Sony.
Sony has 5x the sales of Nintendo, but with much less margin is less than double Nintendo.
Here's a good one to show how important profits are. Adobe.
- Adobe Corporation = about $13 billion US sales = $5 billion profits = 38% margin = $224 billion market cap
Adobe is worth more than Sony and Nintendo combined with only $13 billion sales.
I never said that profit is not important. I said profit isn’t everything.
They need revenue/sales to gain profit. Yes, having a high revenue doesn’t mean anything if you are always losing money.
If you are selling and still gaining a profit considering all the expenses you have.
I see that as a healthy company that has a lot of room for growth that will be potentially increase their market cap and their profits
It’s not black and white.
We don’t know the specific expenses for both and that will not show in their reports.
We can only assume and guess on what are those.
Sony is a multi-media company that has a lot of sectors and those have high operating cost. Some doesn’t make any profit.
Same goes for SIE not all there games turn into profit.
This is the first time Sony will have profits entering new generation. This is because of the PS4. If they will have the same monstrous revenue for PS5. Expect Sony’s profit to be better than PS4.
Revenue dictates your growth not profits. The more items you sell the more profits you will gain in the future.
Business model of Sony is very different from the business model of Nintendo.
Nintendo maximize their profit thru their software.
Sony is willing to cut their price to have more sales for long term gains.
It’s not a zero sum game both are successful.