(Bloomberg) — Nintendo Co. gave a double dose of disappointment by posting earnings below analyst estimates and signaled that it would not introduce a highly anticipated new model of the Switch game console at a June trade show.
Operating profit was 29.7 billion yen ($266 million) in the three months ended March, compared with the 36 billion yen average of estimates compiled by Bloomberg. For the current fiscal year, operating profit will be 260 billion yen, compared with the 350.2 billion yen expected by analysts.
Shares have rallied this year on optimism that a cheaper version of the Switch, a stronger lineup of games and a potential entry into China will help overcome last year’s missteps and broaden Nintendo’s customer base beyond its dedicated fans. But President Shuntaro Furukawa tamped down those expectations after the earnings, saying the China launch is far off and there’s no plan to unveil a new Switch at the Electronic Entertainment Expo in the U.S.
“The market wanted a little more,” said Tomoichiro Kubota, an analyst at Matsui Securities in Tokyo. “The forecast is quite conservative and leaves a negative impression.”
The company expects to ship 18 million Switch consoles in the current year, compared with analyst projections for 18.5 million. It shipped 17 million units last year, below estimates for 17.5 million.
“As a general rule, we’re always working on new hardware and we will announce it when we are able to sell it,” Furukawa told reporters in Osaka. “But we have no plans to announce that at this year’s E3 in June.”
Shares of Nintendo had risen 32 percent this year prior to the results, compared with an 8.4 percent rise in the Topix index.
Nintendo sold 119 million software units last fiscal year, slightly below analyst projections for 121 million. Despite sporting a stronger lineup, the company expects to sell 125 million in the current period, below estimates for 161 million. Analysts had incorporated the prospect for a cheaper Switch in their forecasts.
The Pokemon franchise will formally migrate to the hybrid console from the 3DS with the release of two new mainline games slated by the end of 2019. New entries in the Animal Crossing and Luigi’s Mansion series are also scheduled for this year, as well as a remake of an older Zelda title. Analysts expect more big games to be announced at the Electronic Entertainment Expo in June.
Smartphone game revenue grew 24 percent in the latest quarter from a year ago to 12.7 billion yen. Nintendo plans to release two mobile games this summer: Dr. Mario World and Mario Kart Tour. Analysts have speculated that Mario Kart could become a billion-dollar grossing app if executed properly, but the company has delayed the title once and has yet to provide a single screenshot of the game.
With no new 3DS titles scheduled for the coming year, the company is signaling the end for the eight-year-old handheld device. Revenue from the business was 63 billion yen in the fiscal year ended March, down 67 percent from the prior period.
“Historically, PlayStation consoles have enjoyed a longer cycle than Nintendo’s hardware due to price cuts,” said Kazunori Ito, an analyst at Morningstar Investment Services in Tokyo. “That’s why releasing a cheaper model could generate more sales. A smaller Switch is pretty interesting.”
The company could benefit from the highly anticipated Detective Pikachu movie, which launches in Japan on May 3 and globally on May 10. Nintendo owns a significant stake in Pokemon Co. and recorded 6.9 billion yen in operating profit from the investment in the latest fiscal year — most of it likely from Pokemon Go.
Tencent Holdings Ltd. last week said it received the first of several approvals necessary to sell Switch consoles in China. While demand for console gaming remains limited on the mainland, analysts say closer ties with the social media giant could lead to Nintendo releasing its mobile titles in China, the world’s biggest gaming market.
To contact the reporters on this story: Yuji Nakamura in Tokyo at [email protected];Yuki Furukawa in Tokyo at [email protected]
To contact the editors responsible for this story: Edwin Chan at [email protected], Robert Fenner, Peter Elstrom
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