Business / Corporate

Nintendo falls on dour forecast despite strong Switch sales

by Takashi Mochizuki

Bloomberg

Nintendo Co. warned that its profit and sales may decline in the current fiscal year in part because of the coronavirus, sending its shares tumbling despite strong financial results in the last quarter.

The Kyoto-based game-maker forecast a 15 percent decline in operating profit, a drop in Switch console sales to 19 million and a fall in software sales to 140 million. Its shares dropped as much as 5.6 percent on an intraday basis on Friday, while the Tokyo market rose.

In the last quarter, helped by global home confinement enforced by the virus, Nintendo’s operating profit tripled to ¥89.5 billion ($842 million) while its Animal Crossing: New Horizons title soared to 13.4 million sales in its first six weeks on sale. That helped Nintendo sell 21 million Switches in the year ended March, beating its own estimate and Morningstar Research’s expectation of roughly 20 million units.

Nintendo joined other tech corporations in sketching out a cautious outlook for the year ahead, largely because of uncertainty over the impact of the COVID-19 pandemic on production and services. The company continues to wrestle with component shortages for its console, but now expects disruptions to fade away over the summer, President Shuntaro Furukawa said.

"We expect the COVID-19 impact on our production to go away by summer, and our 19 million sales forecast is based on that. But we will revise the forecast if the virus impact is set to persist longer than we currently expect,” Furukawa told analysts on a call. "There’s a risk that we may need to delay releases of the games we plan for this fiscal year. But, at this point, we don’t expect any major delays,” he added.

"The stock is falling because of bad guidance and comments by management indicating delays to game schedule,” said David Gibson, chief investment adviser at Astris Advisory Japan. "I estimate they are assuming only one AAA title for the fiscal year, plus users buy one older title, meaning two games per Switch owner.”

For now, Nintendo is riding the surging popularity of Animal Crossing: New Horizons, which helped propel a 40 percent rally in the company’s shares since their low in March, adding more than $16 billion to the Japanese firm’s market value. Arriving at a time when people were looking for ways to connect with friends while staying at home, the marquee title — in which players adopt cartoon avatars to interact with each other and set up their own isles — has proven a haven from the outbreak.

Furukawa said the game’s momentum took even Nintendo by surprise, catching on first among younger women who were early franchise devotees before spreading to a much wider audience via word of mouth.

Animal Crossing’s popularity has made the Switch hard to find almost everywhere in the world. The company asked suppliers to boost Switch production to about 22 million units for the current fiscal year, Bloomberg News reported in April.

Rivals Sony Corp. and Microsoft Corp. plan to launch new consoles for the holiday season. Nintendo, which launched the more affordable Switch Lite in September, said earlier this year it doesn’t plan to release any additional new hardware in 2020.

Nintendo has struggled in past years to take full advantage of the global smartphone gaming boom, and has yet to communicate a clear strategy for competing in the online sphere. On Thursday, Furukawa signaled the company would focus on developing revenue from existing mobile games rather than try and keep refilling its pipeline with new titles.

That marks a shift from its previous indications that it would release two to three new mobile games each year. Nintendo said revenue from mobile games and licensing loyalties combined was ¥51 billion in the past fiscal year.

"Nintendo’s results are impressive but management is implying that the Switch has peaked,” Serkan Toto, CEO of Kantan Games Inc. said. "What is really strange is that Nintendo expects less software sales despite a massively expanded install base. So either Nintendo is being comically conservative, or they expect Covid-19 to have a massive impact on demand or their internal software pipeline.”

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