Switch on

Nintendo Is a Believer

The new games console is behind higher revenue and forecasts.
Troy Harvey/Bloomberg
At Closing, April 20th
45900.00 JPY

Nintendo Co. is starting to believe in itself.

Shares of the Japanese games company have climbed 75 percent this year on speculation its Switch console would be a hit. Investors put that rally on hold in July after the company chose not to upgrade its full-year shipment forecast, a sign the market had been expecting.

Then on Monday, Nintendo posted the largest revenue beat in a decade, and the strongest operating income turnaround in 10 quarters. While analysts had been bullish, they hadn't been that bullish.

Power Bonus

Nintendo's fiscal second quarter revenue surprise was the highest in 10 years, driven by strong sales of its Switch console

Source: Bloomberg

Level Up

Nintendo just posted its largest turnaround in operating profit for at least 10 quarters

Source: Bloomberg Gadfly, Nintendo

Note: Turnaround is defined as current operating income less operating profit/loss from year prior.

This clearly gave Nintendo executives the courage to upgrade the company's own forecast, telling investors that it will ship 14 million Switch units for the year, 40 percent higher than its previous prediction.

What's also encouraging is that the strong revenue and operating metrics are resulting in wider profitability. At 10.8 percent, the most recent operating margin isn't as good as the December quarter last year. But if Nintendo delivers on that bolder shipment forecast, investors can be hopeful that margins will also expand.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Paul Sillitoe at psillitoe@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.