Nintendo (NTDOY) earnings down 45%, despite Switch sales growth

The most recent quarter for Nintendo was a mixed bag for investors. Please take a look at our breakdown of the Big N's financial results.

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It's earnings release season, and that means Nintendo is once again doomed. The Big N just reported a year-over-year decrease in earnings due to 12 billion yen foreign exchange loss and "other factors." More puzzling is that the company's flagship Nintendo Switch hybrid handheld console saw sales grow from the previous year's period. 

Nintendo's earnings per share saw a 45% decline from the same quarter in 2018.
Nintendo's earnings per share saw a 45% decline from the same quarter in 2018.

Well, that's it. Nintendo is clearly doomed, right? Hold your horses, bears. There were some good nuggets of information in this earnings results release that could indicate the Switch still has legs. Overall Net Sales at Nintendo were up 2.4% from the prior year period coming in at 172.1 billion yen. During the same quarter in 2018, Nintendo had a tailwind from foreign currency tranlatation. Unfortunately, the yen has appreciated in recent months against the dollar and the euro, which has resulted in a headwind for Nintendo's bottom line growth as those regions represent a large chunk of sales.

Foreign currency translation lead to a nearly 20 billion yen year-over-year swing in operating profits at Nintendo.
Foreign currency translation lead to a nearly 20 billion yen year-over-year swing in operating profits at Nintendo.

I did mention that things aren't all that bad, right? Nintendo announced that the Switch has sold nearly 37 million units and recently released Super Mario Maker 2 sold 2.4 million units in just three days. Digital sales of software are also rapidly growing at Nintendo coming in up 65% from a year ago. Digital game sales made up 38% of the company's software revenue in the quarter, which is an all-time high for the Big N.

Nintendo seems to have overcorrected when it comes to providing guidance, as the company did not alter their sales projections provided on April 25, 2019. This is surprising, considering the new $199 Nintendo Switch Lite dedicated handheld had not been announced at the time. It seems rather dubious that Nintendo doesn't seem to think that cheaper, smaller Switch iteration will have no effect on unit sales, as the company has maintained its 18 million unit Switch sales guidance for fiscal 2020. While currency may remain a headwind for earnings at the company, it is pretty insane to think that Switch Lite won't increase the number of units Nintendo moves going into their crucial Holiday 2019 season. 

The company touted the strong lineup of first party titles hitting Switch later this year, with the releases of Luigi's Mansion 3, Link's Awakening, and Pokemon Sword and Shield hopefully providing some added momentum going into the end of the year. The next major catalyst for investors to watch will be the release of Nintendo Switch Lite in September. 


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
    July 30, 2019 10:15 AM

    Asif Khan posted a new article, Nintendo (NTDOY) earnings down 45%, despite Switch sales growth

    • reply
      July 30, 2019 10:26 AM

      Well that doesn't make any damn sense. Hopefully when I can actually read the article I find out they're spending a bunch on R&D or something.

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      July 30, 2019 10:56 AM

      Any chance you can talk about this on the next Shackcast?

    • reply
      July 30, 2019 11:13 AM

      Hey shacknews is the first news article when asking for finance news about ntdoy. Nice.

      Is it that time of year to short the ole ntdoy???

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      July 30, 2019 11:40 AM

      The current template of Nintendo games desperately needs a shakeup. They need to execute well in the lucrative looter-shooter genre to prove their console has merit.

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        July 30, 2019 11:41 AM

        They will get right on that, Skeetch.

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        July 30, 2019 11:42 AM

        They're selling fine and Pokemon will sit atop the charts for a good long while when it hits in a few months

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          July 30, 2019 3:39 PM

          I’m sure it’ll sell well but I think for those that are informed it’s not going to be a console seller. Not having the whole list of Pokémon in the game is quite a bummer.

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            July 30, 2019 5:06 PM

            It's inevitable as assets enter the HD era. I don't think it'll be a major impact on sales.

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              July 30, 2019 5:41 PM

              I understand that excuse but they’re reusing 3DS models for all the Pokémon being brought from previous gens. Each Pokémon doesn’t get unique animations for all their moves so it’s not like they’re taking up a bunch of time with that. Game freak rarely goes above and beyond with their game and constantly removes features from games and does the bare minimum with a couple of gimmicks sprinkled in. Silver and gold remakes had your Pokémon follow you around and the removed that for whatever reason.

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        July 30, 2019 3:15 PM

        They will be the first one to pierce the genre!

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        July 30, 2019 3:46 PM

        Oh, you mean shlooters?

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        July 31, 2019 12:40 AM

        Splatoon2 is my favorite shooter in a long time.

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        July 31, 2019 3:48 AM

        🙄🙄🙄🙄🙄🙄

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      July 30, 2019 12:15 PM

      It's the traditionally low FY Q1 for Nintendo. Spring-into-summer is not when people are buying hardware. The only major 1st party release this quarter was SMM2, which is not a system driver. (it only sold like 2.5 M)

      However, with Pokemon and a few other good 1st parties in FY Q3, Q2 should be looking better. Likely will break 40M by Sept, and may be on track for 50M when Lite systems go on sale just in time for Pokemon.

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      July 30, 2019 3:46 PM

      the 2 for 1 coupon makes sense now since digital sales go toward them and they get more out of it. rip gamestop btw

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      July 30, 2019 5:27 PM

      seems like there is a bunch of cost overhead in there - new teams spun up?

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      July 30, 2019 11:33 PM

      Crazy, well I would think come next year it will be even worse when the investors look at what Nintendo has and what both Sony and MS have as their new offering: PS5 and XB2

      In my opinion N really needs to release a Switch 2 or Pro and then all would be well for investors's minds. They have to make sure the hardware is at least 2x the power of the OG Switch, so at least something like this:

      - 8 GB of usable RAM
      - 8 logical CPU cores that are usable
      - A base 1080p resolution in mobile mode
      - Juice the battery life to 6 or 8 hours
      - Juice the GPU as much as possible, like 2x at the minimum would be nice
      - 100% native backwards compatible to OG Switch, also it be cool if it would juice up the FPS and enhances the current OG Switch games.

      I would actually take it once step further and say Nintendo should actually for once take a hit(if needed) on the console hardware and play console hardware catch up. We all know N does not really compete with Sony and MS but the hardware gap is going to be insane next year and also in terms of what is going on with the PC space and future tech. Investors are not going to be satisfied with just a Switch Lite something has to give and be substantial or I think a bunch will bow out. As a Dev the current Switch specs are really insane to work around especially if you want to do anything modern in my opinion and ports are really difficult. Once the PS5 and XB2 drop no one will bother port their games to the Switch it is already a very challenging task as it is from PS4 or XB1 to Switch. If N is not looking forward to what is up ahead it is going to catch up with them.

      Personally I love the design of the Switch I would not change that and keep it as is a hybrid console/portable. Really it is a case that the base hardware needs the extra horse power asap to be relevant/get with the times and then everything will be hunky dunky.

      Honestly if N would actually do this the results would be freaking massive! Anyways not sure this is related to the NTDOY drop but as an investor I be massively worried for the future plans of N and where they want to take the Switch at this point. It's been so quiet :( , the Lite is cool I guess but if you have a Switch OG who cares. On the flip side both Sony and MS are dropping it like it's hot Krumping and hyped out of their mind for their future offerings, It really is quite the contrast. If I had swimming pools of Cheddar it be real hard to convince me to drop like it's hot on N compared to MS or Sony.

      Asif what do you think? Some merit. legit Bro or pure MAD Lad Madness?

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        July 31, 2019 12:39 AM

        It was a solid quarter for them, they just make 75% of their money from outside Japan and the exchange rates hurt. I assume Sony has a similar issues, don’t know how they handle that though. Maybe unfavorable stuff vs Vietnam’s currency since they likely had some large capital outlays there last quarter to move some production from China.

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          July 31, 2019 1:37 AM

          Cool, thanks for the info that is a real good point. I guess the stuff I am talking about is more of what us gamers and game devs want from the company moving forward and their financial stuff is not effected by it(or at least not yet, like Asif said the sales are positive and up for the Switch).

          Will be interesting to see how they do next year, I think that will be the kicker considering where everything is at and going.

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        July 31, 2019 1:52 AM

        Nintendo does not need a performance arms race with Sony and Microsoft. They quite intentionally side step that whole effort and expense.

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        July 31, 2019 4:03 AM

        “Investors are not going to be satisfied with just a Switch Lite”

        A $200 entry point to the Switch library of first party games is exactly what they want. They are going to sell every single Lite that they produce, a good portion of them to households that already own a Switch, and in those cases you’re looking at additional copies of games like Mario Kart and Smash being sold.

        High performance and expensive hardware is not going to move units, the Xbox One X is proof of that. The console market is extremely price sensitive. On top of that Nintendo isn’t going to lose money on hardware and they’re not going to sacrifice battery life and reliability for performance.

        Nothing you said will come to pass, not at least for another two years when 7nm parts from Nvidia are cheap enough to put into a $300 hybrid console.

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