Nintendo Q3 2018 – An Odyssey Towards Growth

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Nintendo (TYO:7974) have had a very interesting journey to the point they're in now. The Nintendo Wii was, without any shadow of a doubt, a bigger hit than anybody anticipated. Over one hundred million units sold in its lifetime. For home consoles, only the PlayStation and PlayStation 2 sold more. Following that came the failure that was the Wii U. Nintendo seem to have hit big yet again, this time with the Switch.

The companys recent financial reports highlight a dramatic increase in revenue for Nintendo. Even more significant is the increase in profits. Driven by sales from the Nintendo Switch, and other means, it has been a very strong quarter. Q3 revenue has risen year on year from ¥174.3bn to ¥482.9 billion, a 277% rise. Operating profit has risen to an even greater level, from ¥32.2bn to ¥116.5, a 362% year on year growth. This far surpassed Thompson Reuters IBES estimates of ¥67bn.

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Nintendo Switch: The Next Wii?

The Nintendo Switch has now surpassed initial sales of the Wii. This is certainly the case in the United States and, likely, across the world. Tatsumi Kimishima, President of Nintendo, stated that "Because the Nintendo Switch launch was not timed to the holiday season, you cannot make a simple comparison between platforms".

It was also indicated that the Switch has hit a record pace, exceeding the first ten months of sales of the Nintendo Wii. That being the company’s previous best selling console. The Nintendo Switch has also now, in less than one year on the market, surpassed lifetime sales of the Wii U.

Of course having such a boost in sales in the holiday season has led to an increase of software sales. Nintendo's core Q3 release, Super Mario Odyssey, has sold over 9 million units. This has surpassed all other Switch titles, though a number of others have sold well within the period. According to the company, over eight titles on the console have now surpassed the one million sales mark.

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Nintendo have also announced that they will resume production of the NES Classic and keep it running alongside the SNES Classic. This is a sound move considering the popularity of both mini consoles, the SNES Classic having sold over 4 million units globally. Kimishima stated "We view them as an opportunity to garner interest in Nintendo Switch from those who have not interacted with video games in a long time, or ever".

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Where Nintendo have always been market leaders is in the handheld console market. It's far from in a bad position, having sold 5.86 million units in Q1, 2 & 3 of the financial year. However, this is down 9% year on year. More telling is the fall in software sales which have fallen by a third to 31.25 million units. This is despite the successful launch of Pokémon Ultra Sun and Ultra Moon. These two titles sold just short of 7.2 million copies since their launch in November.

Counter to the fall in the handheld market is a growth in the mobile/smart device area. While there are no exact figures to show, Nintendo lump their smart devices business with other IP related income, there has been a notable growth over time. Smart devices and IP related income has grown 274% year on year. This is based on the nine months to December 31st, generating ¥29.1bn compared to last years ¥10.6bn.

This will likely be attributed towards the launch of three major mobile titles in Mario Run, Animal Crossing: Pocket Camp and Fire Emblem Heroes. The company’s first mobile title, Miitomo, is set to be shut down in May. To further boost their presence in the mobile market, Nintendo have announced that Mario Kart Tour will be launched in the coming financial year.

The Future of Nintendo and their IP

These results have been the company’s strongest in close to a decade. To be precise, eight years. With the strength of the Switch as well as upcoming software like Bayonetta, Fire Emblem, Pokémon and more all having been announced for the future, the company will likely grow from strength to strength in the home console market.

An even further growth could be the pending release of Nintendo Labo. Sort of an extension on the toys to life trend that has seen success with Ammibo, Skylanders, Lego Dimensions and Disney Infinity. The strange thing about this is that rather than being figures, this is cardboard. Or, should I say, cardboard with weights, pulleys, AR stickers and more.

It will allow people to interact with the switch in whole new, unique ways and further enhance on what Nintendo started with peripherals for the Wii. Honestly, it's something I can genuinely see being a hit for the console, intriguing both young and older people alike. Particularly as players will have the ability to make and code custom creations with Labo.

Outside of games, Nintendo have a few partnerships to further their IP's. This includes a partnership with Illumination Entertainment to create an animated Mario movie. In addition to this, Nintendo have partnered with Kellogg in the United States to release a Super Mario cereal. The company also plans on continuing a recent trend of releasing theme songs on music distribution services prior to the launch of the game itself.

Without a doubt, Nintendo is in the strongest position the company has been in for a long period of time. The Switch is outperforming expectations and with little sign of slowing down, Nintendo has raised sales forecasts by ¥60bn to ¥1.02 trillion. This has also seen an operating profit forecast increase of ¥40bn, to ¥160bn. While Q4 is looking sparse on releases, FY 2019 is certainly one to look forward to.