Nintendo (OTCMKTS:NTDOY) reported its first-quarter earnings, with a respectable gain in revenue and another big jump in profit. Switch hardware sales slowed by single digits, which was more than offset by a jump in software sales. The company also announced that, as of June 30, Switch sales had almost hit the 20 million mark. Still, Nintendo stock is down about 2%, continuing a four-month slump since reaching five-year highs in March.
In its Q1 earnings report, Nintendo booked revenue of $1.51 billion and an operating profit of $275 million. Those numbers are up 9.1% and 88.4% year-over-year, respectively.
This is another solid quarter for Nintendo, but there were several points that troubled investors resulting in another slide for Nintendo stock: Switch sales and Labo sales. Those resulted in revenue numbers that were lower than what analysts were looking for.
Switch Sales Boost Nintendo Stock
Nintendo says that Switch sales for the quarter totaled 1.88 million. That’s down 4.4% compared to last year, and it’s off the pace of 20 million console sales the company had set for itself in one year.
However, lifetime Nintendo Switch sales had hit 19.67 million units as of June 30. A month later, that number is likely now at 20 million. (It’s important to note that the 20 million lifetime sales are different from the 20 million target for the year that Nintendo has set — the company has three remaining quarters to move nearly 18 million consoles to hit that one-year target.)
By comparison, as of the end of May, global lifetime sales for Sony’s (NYSE:SNE) PlayStation 4 stood at 79 million, while the Microsoft (NASDAQ:MSFT) Xbox One had hit 37.5 million. Given the multi-year head start those consoles have had, the Switch continues to do very well.
And despite the slightly slower pace, Nintendo still plans to hit 20 million units sold within one year, as strong holiday sales and new game titles should ramp up sales volume.
The slight slowdown in Nintendo Switch sales worried some, as did the performance of Labo, Nintendo’s new cardboard construction kits. Nintendo says it only moved 1.4 million Labo units during the quarter, but Nintendo of America President Reggie Fils-Aimé believes Labo will continue to sell at a “very steady pace” for a “very long time.”
Software Sales to the Rescue
As Bloomberg points out, one of the key reasons Nintendo stock has slumped in recent month is concern that software sales for the Switch would be a problem. But in its Q1 report, Nintendo revealed strong software sales for the Switch, putting those concerns to bed.
Titles released in the first year of the Switch continued to see volume growth and were bolstered by new releases like Mario Tennis Aces, to combine for 17.96 million units — up 120.8%. In addition, the company noted digital sales through Switch eShop were up 68% compared to last year.
Looking Forward to the Holiday Season
Despite the slight dip in Nintendo Switch sales and the underwhelming Labo performance, Nintendo isn’t changing its guidance for the year and still expects to hit its sales target of 20 million Switch consoles in one year.
Heading into the all-important holiday sales season, Nintendo has key new game franchises scheduled for release on the Switch, including several “Pokemon” titles. In addition, Nintendo Switch Online — the company’s new paid online gaming service — launches in September.
As Nintendo says: “Through all of these efforts, we are working to further accelerate the already great momentum of Nintendo Switch.”
If the company can ramp up Nintendo Switch sales again heading into the holiday shopping season, and keep the software sales momentum, NTDOY stock may finally break out of its slump. But for now, it’s still a wait-and-see game for investors.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
