Nintendo’s profits rise amid sluggish sales
NINTENDO reported quarterly profit above projections and increased its outlook for the year, but anaemic sales highlighted how important it is for the company’s new Switch console to succeed.
A weaker yen and brisk holiday sales helped the Kyotobased game maker deliver profit of ¥64.7 billion (R7.64bn) for the period ending in December, exceeding analysts’ average projection for ¥20.5bn. For the fiscal year, profit will be ¥90bn instead of the previously forecast ¥50bn, Nintendo said yesterday. Still, revenue for the quarter fell 21 percent to ¥174.3bn, while the full-year outlook was kept at ¥470bn.
The company’s 3DS handheld device, which had helped the company sustain earnings, is starting to sputter. Super Mario Run, Nintendo’s first game for smartphones, had 78 million downloads, yet only 5 percent of those opted to pay $10 (R135) for the full version. The company also revealed that Animal Crossing, an upcoming smartphone game, will be delayed. All of this means that there’s little room for mistakes after the next-generation Switch console rolls out in March.
“There’s no denying Switch must be the earnings driver,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities. “All the existing consoles have peaked. The smartphone gaming market, especially in Japan, has already matured. So having been ignored for a while, dedicated consoles are once again grabbing the attention.”
Operating profit missed projections, at ¥32.3bn, in the quarter compared with analysts’ projection for ¥33.4bn. The company also cut its fullyear forecast for this measure. Nintendo shares in Germany fell as much as 6.7 percent amid low trading volumes.
Pokémon helped Nintendo stay on track in the latest period. Pokémon Sun and Pokémon Moon, new titles released for the 3DS in November, sold well. These were preceded by the summer blockbuster hit Pokémon Go, which helped reignite interest in the battling pocket monster franchise.
“Pokémon did exceptionally well,” Nintendo president Tatsumi Kimishima said after the results. “But we’re also trying to sell more of other titles and weren’t able to do that.”
The company’s long-awaited entry into smartphone gaming also disappointed. Kimishima said the proportion of people opting to buy the game fell below the company’s expectations of a double-digit conversion rate. A second mobile gaming title, Fire Emblem, will be released tomorrow.
That’s putting the focus squarely on the Switch, which goes on sale on March 3 and will seek to fuse home and mobile gaming. Nintendo said it expects to sell 2 million units by the end of March, with analysts predicting about 10 to 11 million units in the 12 months after that. While game consoles are usually sold at a loss early in their life cycles, the Switch will be profitable from the start, Nintendo said.
“You can tell customers have huge expectations based on how Switch reservations are doing,” Kimishima said at a briefing. “We want to increase production as much as we can.”
Nintendo is counting on Switch to replace not just the Wii U, but also the 3DS to a certain extent. Still, the reception so far has been mixed, with fans praising its design but bemoaning its high price of $300. The biggest test is whether its core idea of portable and home game play will resonate with consumers. – Bloomberg