Feb 7, 2023
Nintendo Drops After Outlook Cut as Switch Demand Starts to Cool
(Bloomberg) -- Nintendo Co.’s stock price plunged after it cut its full-year earnings and revenue outlook in a sign of flagging demand for the aging Switch console.
Shares in the Kyoto-based company dropped 7.5% in their biggest drop in 16 months in Tokyo Wednesday. The company missed console sales targets in its December quarter earnings results, underscoring uncertainty around the Switch after a six-year run despite a consistent pipeline of software hits.
“Earnings showed the Switch is rushing to the end of its life cycle at a faster pace than what we had anticipated,” said Kazunori Ito, an analyst at Morningstar. “Hardware strategy is a key for Nintendo in the next fiscal term, but it looks like it has no good measures for now.”
Investors are focusing on the Switch’s sales momentum in the coming fiscal year. Nintendo has sat out a broader rally in tech stocks this year and may remain stuck in the doldrums until it unveils a successor to the Switch, which has seen sales declining over the past two years. The company expects to end the year with about 18 million consoles sold, down from an earlier 19 million target.
Nintendo said it now expects operating income of 480 billion yen ($3.7 billion) for the year ending March, down from 500 billion yen previously. It’s projecting net sales of 1.6 trillion yen, down from 1.65 trillion yen.
Nintendo Cuts Outlook as Questions About a Switch Successor Grow
“Demand is exhausted” for the Switch, said Mark Chadwick, an analyst who publishes on Smartkarma, adding that the normalization of supply chain issues benefits rival Sony Group Corp.’s newer PlayStation 5.
The global gaming industry is grappling with uncertainty about demand in 2023, as high inflation and a potential recession may crimp spending on entertainment.
Many investors had expected Nintendo to increase its guidance thanks to twin games Pokémon Scarlet and Pokémon Violet, which became the fastest-selling Nintendo games in the company’s history. The company reported operating profit of 190 billion yen and sales of 638 billion yen in the December quarter, both weaker than average estimates.
The downgrade came despite strong sales of the twin titles, released in November. Only weeks earlier, Splatoon 3 had set a new high for fastest domestic sales in Japan. Foreign currency volatility played a role in the lowered forecasts, Nintendo said.
Attention is on when Nintendo might be able to launch the next generation Switch.
“The issue that most analysts do not fully appreciate is the difficulty in upgrading the GPU of Switch without sacrificing battery life,” Amir Anvarzadeh, a market strategist at Asymmetric Advisors in Singapore, wrote in a research note. “This is a new problem for Nintendo as they have always had two consoles to take care of, one for home and the other is their handheld franchise.”
--With assistance from Kurt Schussler.
(Updates share price in second paragraph and adds analyst comment in final paragraph)
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