Nintendo Tops Profit Estimates, Cuts Switch Shipments Target

(Bloomberg) -- Nintendo Co. topped quarterly profit estimates on holiday demand for Pokemon and Super Smash Bros. games, but weak Switch demand forced the company to cut its shipments forecast for the gaming device.

Operating profit was 158.6 billion yen ($1.5 billion) in the last three months of 2018, the Kyoto-based company said in a statement Thursday. Analysts were projecting 147 billion yen on average, according to estimates compiled by Bloomberg.

Nintendo is now forecasting 17 million Switch shipments for the fiscal year through March, compared with its prior outlook for 20 million units and analysts’ average prediction for 18 million. The results underscore how the Switch is struggling to make up for stagnating 3DS sales. Having combined its home and handheld products into a single device, it has to carry both business lines on its own. So far, President Shuntaro Furukawa hasn’t succeeded in expanding the Switch beyond a core user base.

“Nintendo needs to expand the audience reach of the Switch,” David Cole, founder and chief executive officer of DFC Intelligence, said in an interview this month. “That is really a marketing challenging.”

Nintendo’s shares, which fell 29 percent in 2018, have climbed 16 percent this year on optimism that the company will be able to stage a recovery.

The game maker kept its operating profit outlook of 225 billion yen for the current fiscal year. That compares with analysts’ prediction for 267 billion yen. The question is whether the possibility of price cuts and an improving software lineup will help support confidence among investors that Nintendo will be able to attract more buyers for the hybrid console beyond its core fan base.

Back in May, analysts predicted Nintendo would sell 21 million Switch units this fiscal year, but the average projected steadily decreased to 18 million. “Investors realized that the Switch audience was fairly limited,” Cole said.

Nintendo shipped 9.4 million Switch units in the latest quarter, compared with the 9.1 million projected by analysts.

Nintendo sold 53 million software units during the quarter, more than double from a year ago. The company raised its guidance to sell 110 million games this fiscal year, up from 100 million.

The biggest hits were Super Smash Bros. Ultimate, which sold 12 million units since its release on Dec. 7. Let’s Go Pikachu/Eevee, released Nov. 16, sold 10 million.

Nintendo pushed back the release of Mario Kart Tour to summer in Japan from March, an unexpected delay. The smartphone game has the potential to become the company’s highest-earning mobile title, according to Newzoo analyst Jelle Kooistra. “The franchise has more mainstream appeal than any other Nintendo title, and its fast-paced gameplay is a great fit for mobile,” he said, adding that it could generate annual revenue of a billion dollars.

Smartphone revenue during the quarter grew 31 percent to 14.6 billion yen, driven by a new title Dragalia Lost. which was released on Sept. 27. The game’s co-developer, CyberAgent Inc., on Wednesday slashed its earnings outlook and froze hiring, saying results were below expectations. The title generated 3 billion yen in revenue in its first month, but has since struggled to monetize users, executives said.

The company’s eight-year-old 3DS business continued to sputter, with revenue shrinking to 27 billion yen in the latest quarter, down 71 percent from a year ago. It was the first holiday season for the handheld system without a new Pokemon game, which was instead released on the Switch.

To contact the reporter on this story: Yuji Nakamura in Tokyo at ynakamura56@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson

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