Nintendo Surges to 9-Year High as Switch Drives Higher Forecast

Updated on
  • Operating profit outlook almost doubles to 120 billion yen
  • Forecasts 14 million Switch shipments, up from 10 million

Nintendo Co. soared to its highest since 2008 after the company nearly doubled its annual profit forecast on better Switch production and customers bought more games than anticipated.

Shares jumped as much as 6 percent in Tokyo, heading for their highest close since September 2008. The stock has almost doubled since March, when the Switch console was released, adding $28 billion to Nintendo’s market value.

An attendee plays the Nintendo Switch console.

Photographer: Patrick T. Fallon/Bloomberg

Nintendo ramped up capacity to make more of the Switch, which has been in short supply since debuting in March. The company now predicts it will sell 14 million units in the period, up from 10 million. While analysts were predicting a higher forecast, the increase in production will help to ease supply concerns during the year-end shopping season, when Nintendo typically generates about half of its annual sales.

“All the pieces are falling into place for them to boost production even more next year,” said Kazunori Ito, an analyst at Morningstar Investment Services in Tokyo. “The Wii sold 100 million, and this number is starting to creep into people’s minds when thinking about prospects for the Switch.”

Nintendo raised its operating profit outlook to 120 billion yen ($1.1 billion) from 65 billion yen for the current fiscal year through March. Revenue is now forecast at 960 billion yen with net income projected at 85 billion yen.

The company is betting that the Switch will fuel a new era of growth as more people embrace its dual role as a gaming device that can be used at home or on the go. Achieving the sales target will put Nintendo on track to reach about 16.7 million unit sales in the first 13 months, exceeding total Wii U shipments during the past six years.

“Our component suppliers were able to increase production -- it is thanks to them that we were able to raise our forecast,” Nintendo President Tatsumi Kimishima told reporters after the results. “We’re going to grow production capacity even more.”

Operating profit in the September quarter came in at 23.8 billion yen, based on figures derived from reported first-half results. That topped projections for 19.2 billion yen, the average of estimates compiled by Bloomberg. Revenue was 220 billion yen in the quarter, exceeding estimates for 174.6 billion yen.

Nintendo sold 2.9 million Switch consoles during the quarter and 13.9 million software titles, a faster pace than the prior period. Part of the gain is due to strong sales in Japan, where Nintendo had promised to boost Switch supply for July and August to meet higher-than-anticipated demand for Splatoon 2.

Splatoon 2, the shooting game that went on sale July 21, was a standout hit during the latest quarter with 3.6 million units sold. The game is expected to play a major role when Nintendo begins charging for its online network service from 2018.

Bloomberg’s Yuji Nakamura reports on Nintendo’s results and sales of the Switch console.

(Source: Bloomberg)

Despite increasing its software sales forecast, Nintendo is still being conservative, according to Morningstar’s Ito. Current forecasts suggest a software-to-hardware ratio of 3.6, well below the 4.5 attachment rate that Nintendo was able to achieve since April, he said. “The forecast is too low. Even the Wii U in its first year achieved a ratio of 3.9. There’s room to raise the profit forecast even more,” he said.

Nintendo’s Kimishima sought to temper expectations, however: “These are not easy figures,” he said.

The portable 3DS business appears to be approaching the end of its product cycle. Nintendo sold just 13.8 million titles during the last six months, down from 19.2 million a year ago. This month, Pokemon developer Game Freak said upcoming titles Ultra Moon and Ultra Sun will be the last Pokemon games for the 3DS console. By merging home and portable gaming, some investors are concerned Nintendo won’t announce a successor to the 3DS and is abandoning its two-gadget strategy.

Revenue at the fledgling smartphone business was 8.8 billion yen, down from 9.1 billion yen in the prior quarter. Nintendo last week unveiled its third smartphone game, Animal Crossing: Pocket Camp, which will be released in late November. Analyst reception has been mixed to the community-simulator, where players build a customized camp site and can pay to skip time-consuming tasks. Some have called the title a “long-term cash machine,” while others expect a more subdued performance.

— With assistance by Matt Turner

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