Nintendo provides tepid Switch sales guidance for 2020

Nintendo shareholders were met with some bad news this morning as the Big N provided weak sales expectations for their Switch hybrid handheld console device.

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Nintendo released their earnings results early in the morning here in the United States, and the market seems pretty disappointed. The Big N provided some pretty weak guidance for the next fiscal year. One data point that jumped out at analysts was the Nintendo Switch console unit sales guidance coming in at only 18 million. This is below consensus estimates that were set at 18.5 million units. 

Average analyst expectations for 2020 Switch sales were at 18.5 million units before Nintendo reported earnings results. | Bloomberg
Average analyst expectations for 2020 Switch sales were at 18.5 million units before Nintendo reported earnings results. | Bloomberg

Nintendo (NTDOY) shares are down almost 5% on the day in response to this news. It isn't only the Switch sales guidance that is cause for concern. The company is also guiding for a 6.46% year-over-year drop in profit per share from 1615.51 yen in 2019 to 1511.02 yen in 2020. This profit decline comes in spite of the fact that Nintendo believes revenues will continue to grow albeit much slower in 2020.It is important to note that Nintendo's sales guidance assumes a dollar yen conversion rate of 105 yen/dollar even though the currency is currently valued at a more favorable 111.57 yen/dollar.

I reached out to an anonymous hedge fund manager who goes by Piranha Plant Capital on Twitter about Nintendo's weak guidance. "Every metric was guided conservatively as is tradition with Nintendo. Glad they learned after the 20mm misadventure. 18mm was my mail it in, keep it boring, raise it after their holiday quarter number," said our potted plant pal. I tend to agree with the assessment that Nintendo is trying to set expectations low in an underpromise, overdeliver fashion. They are taking a conservative assumption on currency translation for the yen, and they don't want to find themselves in a similar scenario as last fiscal year when they struggled to hit their lofty 20 million Switch unit sales forecast. 

I am staying invested in the company, and while the numbers aren't amazing, they aren't terrible either. Some of the biggest news from the report included a statement from Nintendo President Furukawa where he squashed any rumors of a lower-priced Switch device being announced at E3 2019. It is reasonable to assume that such a device would not be factored into the sales guidance they provided today, and could lead to potential upside to sales targets when and if it is announced.

Nintendo's stock still have an active buy signal on the quarterly chart above $39.34/share.
Nintendo's stock still have an active buy signal on the quarterly chart above $39.34/share.

From a technical side, Nintendo still has an active monthly buy signal above $36.35/share and a quarterly buy signal above $39.34/share on the stock chart. Those will be levels to watch as investors digest this disappointing news.


Full Disclosure:

At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long Nintendo via NTDOY shares

CEO

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

From The Chatty
  • reply
    April 25, 2019 11:00 AM

    Asif Khan posted a new article, Nintendo provides tepid Switch sales guidance for 2020

    • Zek legacy 10 years
      reply
      April 25, 2019 11:44 AM

      From a consumer standpoint I think the current Switch has had its time in the sun and isn't going to be knocking anyone's socks off from here on out, it'll continue to be a decently successful console for Nintendo exclusives and indies.

      The best thing they can do to change that IMO is to put out a handheld-only model at a significantly lower price point. I think they haven't yet begun to tap into the DS market at all, which they absolutely need to because this is their handheld strategy now. It would be madness for Nintendo to abandon the "I need a cheap durable handheld for my kids" market.

      • reply
        April 25, 2019 1:39 PM

        I agree. I do think there’s still plenty of growth in the switch market though—I’m amazed at how many folks at my kids school have never even heard of it.

    • reply
      April 25, 2019 1:37 PM

      It does seem conservative on their part for sure. Overall a pretty solid quarter. Gonna be a nice dividend in June. I still think the company has a lot of growth potential. They need that cheaper switch though.

      • reply
        April 25, 2019 2:22 PM

        Better to sandbag then set this insane number that they couldn't reach. I'm still surprised that Kimishima did that last year given that Nintendo generally sandbags very hard.

        Even now their launch aligned shipments are doing terrific and they just had the best spring quarter hardware sales of any console this generation (PS4/XB1): https://twitter.com/ZhugeEX/status/1121332533558501376

        Why set this crazy 20M goal for second year shipments, were they trying to instill fear into their sales team or something? Bizarre.

        • reply
          April 25, 2019 2:36 PM

          I think they thought their software release schedule was going to be stronger than it ended up being.

          • reply
            April 25, 2019 2:47 PM

            Metroid has to have hurt a bit, and 2020 would've made sense for that window.

            • reply
              April 25, 2019 2:48 PM

              Metroid's a couple million units tops, sad to say. That being said there's a particular type of gamer that would buy the system just for that, and it would be a couple of those percentage points I'm sure.

              • reply
                April 25, 2019 2:49 PM

                I know it's far from their biggest seller, but with the Switch's penetration they have the potential for Metroid Prime 1 numbers if it's a good game.

                • reply
                  April 25, 2019 2:51 PM

                  Oh sure, but even MP1 was what, 3 million units? And it didn't move the GC numbers much. I don't think that's quite the same scenario here though I'm sure the software throughput numbers will be similar.

                  • reply
                    April 25, 2019 6:26 PM

                    Honestly I wouldn't be shocked if the GC hardware moved Prime more than the other way around. During the 2002 holidays it was bundled with, what was at the time, a limited edition GC color (Platinum later became the defacto standard color).

                    And the depressing numbers! Best known, if you include the Wii and Trilogy physical re-releases, Prime 1 sold 3.47m physical units, otherwise it was 2.84 just for the GameCube. WiiU digital sales of the Trilogy are unknown, though I think half a million would be an optimistic yet still possible estimate. So maaaaaaaaaaybe ~4 million sales across 13+ years and three platforms.

                    Which is to say I agree, Metroid games don't sell, even if they're mostly quite good.

                    • reply
                      April 25, 2019 7:55 PM

                      Its wild that Smash Ultimate, Mario Odyssey, and MK8DX are all probably going to outsell lifetime GCN sales this year.

                      Odyssey is also the best selling 3D Mario of all time, beating total Galaxy sales despite being out for only 18 months.

            • reply
              April 25, 2019 3:15 PM

              Metroid couldn't have been a factor for last year's sales projections. 2020 was a likely projected launch date before the game passed from Bandai Namco to Retro.

          • reply
            April 25, 2019 3:17 PM

            They knew what their release schedule was early last year. The only thing that got pushed back was Yoshi, and I can't imagine that they expected it to move units like they did with Pokemon Let's Go and Smash.

            I just think they were just being uncharacteristic by setting projections at 20M units when in the past they've always guided very conservatively. Underpromise and overdeliver, not the other way around.

    • reply
      April 25, 2019 6:52 PM

      Lol!!

    • reply
      April 25, 2019 7:49 PM

      Jefferies on guidance: https://javatar.bluematrix.com/sellside/EmailDocViewer?encrypt=c563914a-42fb-4798-aa56-2543f7770dd5&mime=html&co=Jefferies&id=AGoyal@Jefferies.com&source=mail

      "Guidance" - a low bar or irrelevant?
      We have repeatedly warned of 'conservative guidance' to the extent that (in this note) we wrote "will again end up guiding so conservatively as to make most of its guidance numbers of very little relevance."


      This is exactly what I'm thinking when I look at revenue and profit going back to 2001.

      https://i0.wp.com/workingcasual.com/wp-content/uploads/2019/04/Nintendo-Revenue-2019.png
      https://i0.wp.com/workingcasual.com/wp-content/uploads/2019/04/Nintendo-Operating-Profit-2019.png

      Finally, launch aligned cumulative shipments: https://pbs.twimg.com/media/D4_FsieWAAAxtsp.jpg:large

      There is conservative forward guidance and then there is sandbagging so hard that the biggest pessimist would find that information to be useless. This FY2020 guidance is useless.

      Its the opposite problem from last year when they set insane expectations. Even after setting a Q1 record for this entire console generation they still missed their initial estimate. This year its flat guidance for a year with much more software and a probable hardware revision on the way. Oy.

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