Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) released its quarterly earnings report for its fiscal third quarter 2017 and the news was very good indeed for investors.
Strong Switch sales resulted in the company’s highest third-quarter earnings in eight years. And for the second quarter in a row, it raised its forecast for full-year Switch sales and profit. NTDOY stock is up 6.7% on the news.
Nintendo Earnings Blow Past Estimates
Nintendo released its fiscal Q3 earnings yesterday and blew past analyst expectations on both revenue and profit. Forecast revenue for the quarter was $3.75 billion. Instead, it hit $4.44 billion. That resulted in Nintendo earnings of $1.07 billion compared to the expected $640 million.
Compared to last year, that’s a 177% gain in revenue and a whopping 261% improvement in profit. It also makes last quarter Nintendo’s most profitable in eight years. Naturally, this news is continuing the upward trend for NTDOY stock, which has been on a tear since the Nintendo Switch was released last March.
Switch Sales: The Driving Engine of NTDOY Stock
When the Switch was released in spring 2017, there were questions about if Nintendo would be able to survive as a console maker. The Wii U had been a disaster, allowing rivals Sony Corp. (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) to take the lead in the console wars. The Nintendo Switch — a relatively low-powered portable/console hybrid system coming at the same time the PS4 and Xbox One were moving toward more processing power and 4K support– seemed to have a distinct possibility of flopping.
Instead, Switch sales blew past expectations. And demand has remained strong, with consumers snapping up the Switch up as fast as Nintendo could make them. Through the holidays, PS4 and Xbox One sales were common, but retailers could draw crowds merely be advertising they had the Nintendo Switch in stock — no discounting required.
Nintendo’s earnings report confirmed that Switch sales are stronger than ever, with 7.23 million sold over the holiday quarter. That brings total Switch sales since release to 14.86 million, already surpassing lifetime Wii U sales (13.56 million units) even though the Switch has yet to hit a full year on the market.
Nintendo released a revised Switch Sales forecast, saying it now expects to sell 15 million units by March. It also raised its operating profit outlook to $1.5 billion from $1.1 billion for the fiscal year ending March. This is the second upward revision, after the company boosted its forecast in October — once again, thanks to stronger-than-expected Switch sales.
2018 Is Looking Good for Nintendo
So far, 2018 is shaping up to be a good year for Nintendo. Switch sales show absolutely no sign of slowing down, and the company is predicting that it will surpass the current levels of success, with 20 million sales in the next fiscal year. That will also mean an increase in game revenue, as Nintendo cranks up the franchise releases for its console. For example, Super Mario Odyssey — a $59.99 game released for the Switch on October 27 — has already moved over 9 million units, after selling over 2 million copies in its first four days.
Besides a stable of game franchises to exploit, the company will also be releasing the Nintendo Labo cardboard construction kits for the Switch it announced a few weeks back. The expectation that these will be in high demand pushed NTDOY stock up 3% when they were first unveiled.
In short, the Nintendo at the start of 2018 looks nothing like the Nintendo that started off 2017. Instead of doubt about its future, the company is going into the year with its strongest product lineup since the Wii was released in 2006. Switch sales are on fire and show no sign of slowing. Reflecting this new vitality, NTDOY stock is up over 110% in the past 12 months, with plenty of room for continued growth.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
