(Bloomberg) -- Nintendo Co. executive Reggie Fils-Aime is fighting back against the view that the game maker is running out of surprises, a sentiment that has fueled the company’s worst stock rout in almost three years.
The head of Nintendo’s U.S. operations said on Wednesday in Los Angeles that analysts who doubt its ability to deliver more content have got it wrong, saying that the Switch hybrid console is on solid footing ahead of its second holiday season. He defended the game lineup unveiled at this week’s Electronic Entertainment Expo — which analysts have criticized as lacking — promising to show more “in the weeks and months ahead.”
His words did little to reassure investors, who drove shares down by about 4 percent on Thursday, bringing the drop in June to 16 percent and putting the stock on track for its worst monthly performance since September 2015. Even though the Switch has done well, surpassing sales targets and boosting Nintendo’s bottom line, analysts say executives may have front-loaded all the big announcements into the device’s first year, leaving little ammunition to surprise gamers and shareholders.
In a pair of interviews with Bloomberg on the sidelines of E3, Fils-Aime told Bloomberg Television’s Emily Chang and reporters about his reaction to the share drop to the potential launch of YouTube and Netflix on the Switch:
Is there an issue with the gaming pipeline?
“As you look at Nintendo over these many years, if you look at the number of analysts who have actually gotten it right, it’s fairly small. And it’s because we as a company, we hold things close to the vest. We love to surprise the overall community and environment, and when we surprise, we surprise big.”
While analysts have commented extensively on Nintendo’s game lineup, they haven’t lowered their targets to reflect that sentiment. Out of the 23 analysts who cover Nintendo, 20 have a buy rating and 3 rate it a hold. That’s an improvement from the beginning of the year when 19 out of 26 rated it a buy, with 5 hold and 2 sell ratings.
“Why the analysts reacted the way they did, who knows. But we know from a company perspective there’s a lot more up our sleeve and a lot more we have to show in the weeks and months ahead.”
“When we approach an event like E3, we show content that will launch over the next six to nine months, and no more. It’s the pacing of news, the pacing of launches that will drive the business forward. So what I say is, don’t worry, we’re driving the business forward, we’re driving engagement on the platform, and that’s what’s most important.”
What revenue do you expect from Fortnite?
“Right now, Fortnite arguably is the most popular game in the world. You’ve got Nintendo Switch right now as the most popular piece of hardware in the world. So from our perspective, that combination is magical. We’ve seen that with just the huge amount of downloads in such a short period of time.” (Fils-Aime said the free-to-play game was downloaded 2 million times in the first 24 hours.)
“We don’t talk publicly about the revenue split. But what I can tell you is that for each of these different partners with digital content, the revenue split is a little bit different.”
When will Netflix and YouTube launch on Switch?
“When we launched the Switch, we were very clear we wanted to position the device as a game-playing device. We’ve done that, and so you’ve seen Hulu for example come on to the platform. In terms of other services, the conversations are on-going. We’ve got nothing to announce right now. But certainly those opportunities will come in due time.”
Is Nintendo moving toward more digital revenue?
“Loot boxes, broadly speaking, have gotten a bit of a bad rap. The game mechanic of buying something that you’re not sure what’s inside is as old as baseball cards. What we believe at Nintendo is that a gameplay mechanic that offers the consumer something to buy that they’re not sure what’s inside can be interesting as long as that’s not the only way you can get those items. And that’s where some developers have made some mistakes. For us, its one of many mechanics we can use to drive on-going engagement in the game.”
The market’s worried the Switch lacks third-party games
“If that was the rationale for raising a concern about the stock, then that one is a bit difficult to understand. These are games that are being shown on Switch at E3. And certainly we’ve got more than these that are launching on the platform and in development. Our third-party support right now is exceptionally strong because the platform is growing and growing worldwide. The development environment is straight-forward for the developers. And the consumer is highly engaged. That’s what third-party developers want to see.”
When will the 3DS be discontinued?
“So far this year, our 2DS and 3DS business is up 10 percent” in the Americas market. “So the Switch is not all on its own. It’s getting some very strong support by a dedicated handheld business here in the Americas. And for us we want to continue driving both of those platforms. 2DS and 3DS are for kids and families to get engaged for the first time potentially in video games, and Nintendo Switch is going to be that game where consumers want to play Smash Bros., Zelda and all of those big epic games.”
--With assistance from Emily Chang.
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