Steered by the Switch, Nintendo posts best third-quarter in eight years

Japanese videogames maker Nintendo reported its biggest third-quarter operating profit in eight years, driven by smashing demand for its new Switch games console, and said it now expects annual earnings to outstrip its previous estimate.

Growing popularity of the hybrid home-portable console has led to a near-doubling of Nintendo's stock price to nine-year highs since the device's launch in March last year.

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Nintendo makes the big Switch

What you need to know about the Kyoto-based company's new gaming console.

Sales have far exceeded initial estimates, beating those of predecessor Wii U, and leaving suppliers scrambling for parts.

Nintendo posted an operating profit of 116.50 billion yen ($US1.07 billion) for the third quarter, up almost four-fold from 32.26 billion yen a year ago. This is the highest ever that the company has earned in the October-December period since 2009.

The Kyoto-based company raised its profit forecast for the year ending March to 160 billion yen, from 120 billion yen, versus analysts' estimate of around 144 billion yen.

"Switch sales during the holiday season were stronger than expected in Japan, the United States and Europe," Nintendo President Tatsumi Kimishima said at an earnings briefing.


Nintendo sold 7.2 million Switch consoles in the three months through December and raised its annual sales forecast to 15 million units from 14 million units.

That already exceeds lifetime sales of 13.56 million consoles for the Wii U that was on the market for about five years.

The company expects Switch console sales to further rise to 20 million units or more next year starting April.

On the software side, Nintendo sold 25.1 million Switch game titles during the quarter. Super Mario Odyssey, which went on sale in October, topped all games with 9.1 million units sold during the period.

Meanwhile, business for their older portable 3DS shrank, as Pokemon's last titles for the handheld console went on sale. Ultra Moon and Ultra Sun, which went on sale in November, contributed to the 17.4 million 3DS software titles sold during the holiday quarter, down from 27.6 million a year ago. Nintendo also managed to sell 3 million 3DS hardware units during the period, down from 3.7 million units a year ago.

With the holiday season over and the first wave of big first-party titles on the market, attention now turns to whether Nintendo can sustain momentum by broadening the Switch's installation base beyond core fans.

"Software sales are a likely driver of upside, amid the success of Nintendo's Super Mario Odyssey," Bloomberg Intelligence analysts Jitendra Waral and Sean Handrahan wrote in a report last week. "Plans for increased third-party software title launches in 2018 may aid confidence in Switch's sustained success."

Having started by making playing cards in the late 19th century, Nintendo now relies heavily on the Switch to drive its earnings. It is, however, looking to diversify its revenue sources by moving into new areas such as smartphone gaming and theme parks with its roster of popular characters.

But its efforts in smartphone gaming have produced lacklustre results. The company has released four smartphone titles over the last two years, but recently decided to ditch the first one, a social networking service-style application called Miitomo, due to sluggish demand.

Pokemon GO was a phenomenal success, but Nintendo receives profits only through an affiliate which developed the game with a Google spinoff.

As yet another attempt to diversify, the company said this month it would be launching the Nintendo Labo in April, a set of DIY craft accessories that pairs with the Switch which kids can build themselves on cardboard sheets.

While most analysts see no major earnings impact from the accessories, which range from a fishing rod, piano keyboard to a robot suit, many point to their potential for bringing in younger audience to the Switch.

"This is exactly the kind of crazy idea that Nintendo is known for which we believe will help expand the company's audience," analysts at Macquarie wrote in a recent research note. It will be "appealing to younger audience which has not been addressed by Nintendo for some time."

Reuters, Bloomberg