Nintendo Misses Estimates as Lack of New Games Hits Sales Growth

(Bloomberg) -- Nintendo Co.’s quarterly results missed analyst estimates as a lack of hit games led to the slowest revenue growth since the launch of its Switch console in March 2017.

The Kyoto-based company reported operating profit of 30.9 billion yen ($274 million) during the July-September quarter, below analyst estimates for 37.9 billion yen. Quarterly revenue was 221 billion yen during the period, lower than market projections for 232 billion yen. It sold 3.2 million Switch units during the period, up from 2.9 million a year ago. The company maintained its full-year forecasts.

The slowdown is unnerving investors, who had sent Nintendo shares 15 percent lower this month, amid a broader sell-off in tech stocks. The Switch saw no new major titles during the September quarter, while older and indie games weren’t enough to sustain momentum. That’s raising worries about Nintendo’s ability to reach its target of 20 million Switch units this fiscal year.

“It was a quiet quarter without many big releases from Nintendo,” Hideki Yasuda, senior analyst at Ace Research Institute, said prior to the release. “Reaching their Switch target really depends on the holiday quarter, especially the new Super Smash Bros. game.”

Nintendo didn’t change its full-year outlook for operating profit, revenue, and Switch hardware and software sales.

“From the beginning we decided on a target that would be challenging to reach, not easy,” Nintendo President Shuntaro Furukawa said after the results. “The holiday season battle begins now.”

Nintendo sold 24.2 million software units during the quarter, up from 13.9 million a year ago as a lack of big first-party titles was offset by popular titles from outside publishers. The Switch has become a haven for re-releases of older third-party games like Dark Souls and indie hits including Overcooked! 2. In total, the device has seen nearly 1,000 releases so far this year, up from about 400 in 2017, according to fan site Perfectly Nintendo.

Still, remakes and indie titles aren’t compelling enough for most people to buy a new console. The Switch is missing out on one of the strongest third-party lineups in years, including blockbusters like Red Dead Redemption 2 and Call of Duty: Black Ops 4, which won’t be available on Nintendo’s device due to its limited graphical power. Instead, Nintendo will rely on a pair of Pokemon titles in November and the latest Super Smash Bros. game in December to drive the Switch during the holiday quarter.

Smartphone games revenue in the quarter rose 9 percent from a year ago to 9.7 billion yen. Its newest mobile title Dragalia Lost was released on Sept. 27, resulting in minimal contribution to the quarter. Nintendo has previously said it will release another smartphone title, Mario Kart Tours, sometime before April.

Revenue from the seven year-old 3DS continued falling sharply, dropping 65 percent to 16.4 billion yen in the September quarter from a year ago. In May, Pokemon Co. announced it would no longer release games on the handheld device, moving the best-selling franchise to the Switch.

©2018 Bloomberg L.P.