The Strategist

What happened to Nintendo's profit?

08/01/2019 - 11:12

Nintendo’s profit for the first quarter of the fiscal year was less than the worst forecasts of analysts, as consumers did not show much interest in the new games.

Operating profit for the three months ended in June fell 10% to ¥ 27.4 billion ($ 252 million), the Kyoto-based company said in a statement. This is less than the average analyst forecast of ¥ 37.2 billion, compiled by Bloomberg. Net sales rose to ¥ 172.1 billion. Nintendo left its forecasts for annual profit and revenue unchanged.

In April, Nintendo released profit forecasts, which turned out to be much lower than analysts' estimates, despite the growing demand for game consoles and the planned release of new games, including a remake of Zelda, the new part of Luigi’s Mansion, as well as two Pokemon games. The company is also preparing to release a cheaper version of its portable Switch gaming console and plans to enter the Chinese market. Thanks to high investor expectations, Nintendo shares rose 39% this year.

“Despite the fact that the first quarter did not bring significant results, we have more hope for the remainder of the year,” said Atul Goyal, senior analyst at Jefferies Group, in anticipation of the profit report. The new Switch Lite and the company's appearance in the Chinese market should also have a beneficial effect on sales. ”

Nintendo management kept its conservative forecast for operating profit of ¥ 260 billion with revenue of ¥ 1.25 trillion for the fiscal year ending in March 2020. This is far below analysts' expectations of ¥ 315 billion and ¥ 1.31 trillion, respectively. The company expects to sell 18 million units of Switch and 125 million new items of software products.

More powerful software appeared on Switch in this fiscal year. The release of Pokemon Sword and Pokemon Shield is scheduled for late 2019. New parts for Animal Crossing and Luigi's Mansion are also planned for this year, as well as a remake of the old version of Zelda.

Head of the company, Shuntaro Furukawa, confirmed in April that Nintendo was working with Tencent Holdings to sell Switch in China, but said there were no exact launch dates. Although the demand for game consoles on the mainland remains quite limited, analysts believe that closer ties with the social media giant may help release Nintendo mobile games in China, the world's largest gaming market.

Income from games for smart phones grew by 10% compared to the same period last year to 10 ¥ billion. This month, Nintendo released Dr. Mario World for mobile, but the most anticipated release will be the upcoming Mario Kart Tour. Analysts suggest that Mario Kart could bring the company billions of dollars if it meets expectations of consumers and comes out on time, but Nintendo has already postponed the release once and has not yet presented a single screenshot of the game.