Nintendo Earnings Preview: What to Watch

Analysts will be watching to see if Nintendo upgrades its forecast for March Switch shipments

Jan. 29, 2017

Nintendo Co. is scheduled to brief the press on its third-quarter earnings after the Tokyo market closes on Tuesday, followed by a corporate strategy meeting on Wednesday. Here’s what to look for.

EARNINGS FORECAST:

Analysts expect Nintendo to report a net profit of 34.2 billion yen ($297.1 million) for the October-December period, according to a poll by data provider Quick, up from a ¥29.1 billion profit from a year earlier.

REVENUE FORECAST:

Nintendo is expected to have earned ¥177.5 billion in revenue during the three-month period, analysts say, down from the ¥221.5 billion it gained in the same period a year ago.


WHAT TO WATCH:

SWITCH FORECAST:

Nintendo starts a sink-or-swim challenge with its new hand-held hybrid console Switch on March 3, and it initially estimated it would ship two million units in the month. Analysts believe Nintendo would upgrade the figure to better reflect solid preorder status. For the platform’s long-run success, Nintendo should ship at least 2.5 million units in March but ideally more than three million of them, analysts say.

COINS MARIO COLLECTED:

Nintendo released the “Super Mario Run” smartphone game in December, which is free to download but costs $10 to unlock all its features. Analysts expect the app’s revenue contribution to be small especially because the release was just for Apple Inc.’s iOS devices and the game received poor reviews. One thing to compare with is “Pokémon Go,” a successful smartphone game that gives Nintendo revenues through an affiliate that was in charge of making the app. In the July-September quarter, Nintendo gained ¥12 billion from Pokémon-related sales.

POKÉMON AND 3DS:

Nintendo said it shipped more than 10 million copies of new Pokémon games for the 3DS hand-held in the first batch when the games were released in November, and outside data show Pokémon helped prop up sales of the 3DS, the popular but aging platform. Analysts will look at the latest data to see if the momentum was strong enough to offset the lackluster sales on the console side because Nintendo largely discontinued production of the Wii U, the unpopular system soon to be replaced by the Switch.

EXCHANGE RATE:

Nintendo earns the majority of revenue outside Japan and holds a lot of cash holdings in the dollar end euro, making the company’s bottom line vulnerable to foreign-exchange market fluctuations when closing its books. Analysts say the third quarter was kind to Nintendo because the yen was weaker overall.

SURPRISES:

Nintendo chief Tatsumi Kimishima may provide surprises, including smartphone game titles for the next fiscal year starting in April, an estimate of how many Switch console it hopes to sell in the coming fiscal period, or perhaps something on its quality-of-life project that Nintendo hasn’t provided updates on for a while. Analysts say they don’t expect Nintendo to elaborate much on what they plan to do in April and onward because the company will first focus on the March launch of the Switch.

Nintendo’s ‘Super Mario Run’ Scores Revenue, but CEO Wants More

Jan. 31, 2017

OSAKA, Japan—Nintendo Co. said its smartphone game “Super Mario Run” has brought in more than $50 million since going on sale in December, a performance analysts said was better than expected, although Nintendo’s chief executive wasn’t satisfied.

“Super Mario Run,” released for Apple Inc.’s iPhone in December, has been closely watched because it is the first time Nintendo has put one of its leading characters in a smartphone game instead of games for Nintendo’s own hardware.

Initial results released Tuesday show the Mario game has been far more successful than the typical smartphone game but still may not bring in enough revenue by itself to significantly boost Nintendo’s bottom line.

“Super Mario Run” for Apple iOS devices has generated more than 78 million downloads globally, Nintendo said. More than 5% of those have paid the $10 charge required to unlock the game’s full content, bringing in more than ¥6 billion ($53 million) in revenue so far, it said.

“For a game that charges this much, the performance is pretty amazing,” said Serkan Toto, a Tokyo-based mobile game consultant. He said even games that charge only a dollar or two for in-game items usually convert fewer than 5% of downloaders into paying customers.

Nonetheless, Nintendo Chief Executive Tatsumi Kimishima said he wasn’t satisfied with the initial results because the company had aimed to achieve a double-digit paying rate. Nintendo plans to release “Super Mario Run” in March for smartphones and tablets running Google parent Alphabet Inc.’s Android platform.

Nintendo isn’t ruling out other ways of making money from smartphone games. Pokémon Go, a smash-hit game app developed by a Nintendo affiliate, charges small amounts for in-game features such as incense to attract virtual Pokémon creatures. That payment model was adopted by Nintendo for the smartphone version of its Fire Emblem game, which it plans to release next month.

Mr. Kimishima said Nintendo would release more smartphone games including “Animal Crossing,” which was originally planned by March but now is set to come in April or later.

The contribution from “Super Mario Run” was one of the brighter spots in Nintendo’s October-December earnings. The Kyoto-based company reported net profit of ¥64.7 billion, more than double the year-earlier level, a figure it said was boosted by the weak yen. Revenue declined 21% year over year to ¥174 billion because the videogame business fell below expectations.

For the current fiscal year to March 31, Nintendo forecast a net profit of ¥90 billion, up from the previous forecast of ¥50 billion because of the exchange-rate effect.

During the October-December quarter, Nintendo’s console business was weak because the company is phasing out the Wii U, the unpopular device it released in 2012, to focus on the Switch machine it plans to sell starting in March. Mr. Kimishima said preorders of the Switch were strong and the company was ramping up production.

Elsewhere, the aging 3DS hand-held system did better thanks to new Pokémon games released in November. Nintendo now plans to sell 7.2 million 3DS units in the current fiscal year, up from a previous forecast of six million, but the device itself isn’t that profitable, Nintendo said.