Talking Point: Nintendo's Ambitious Sales Targets Require Runaway Holiday Success

As the latest financial reports show, the time is now

Every three months we gain an insight into Nintendo's fortunes, with details on finances and sales information for different regions around the world. When it comes to solid numbers for hardware and software sales, the quarterly financial results reported by the Kyoto-based company can tell us much about its fortunes and, also, its level of confidence for the future.

Today brought us the Q2 financial results, which also incorporate the numbers from Q1 — in other words, we have statistics and numbers for the last six months of Nintendo's performance, from 1st April to 30th September. For statistic fans it allows comparisons with Q1, of course, while helping us to understand how kind — or unkind — the Summer and early Fall months were for Nintendo. As gamers with an interest in Nintendo's fortunes, naturally we'll do our own bit of analysis to pick apart the latest results.

To recap the baseline results, in general Q2 saw some of the strong Q1 figures deteriorate; some of the good work from that period has been lost. The operating loss for the financial year has grown substantially from 4.9 billion Yen (around $50 million / £33 million) as of 30th June, to 23 billion Yen (roughly $247 million / £148 million) on 30th September — that ultimately means that Nintendo's core business activities have brought an increased loss in the past three months. Despite those losses the company — or to be more precise its clever accountants — have found ways to generate a net profit, so Nintendo is still making money. This net profit also suffered a hit, however, dropping from 8.6 billion yen ($87.8 million / £57.7 million) after Q1 to relatively meagre 600 million Yen (just over $6 million / £3.8 million). At the broad end of the company's overall position, net assets and "cash and deposits" have both fallen, though net assets have jumped — with the level of figures we're dealing with (currently over $4715 million in cash assets) Nintendo is unlikely to lose sleep over those fluctuations.

More importantly, hardware and software sales were reasonable but, still, leave plenty of work to be done. The Summer months in particular can be a tough period, yet some poor figures for Wii U hardware sales have failed to shake Nintendo from cutting its end of year projections. Those are hefty targets, and while we'll get to 3DS and Wii U projections below, the headline number is a target operating profit of 100 billion Yen (over $1000 million); the standing after six months of 23 billion Yen (roughly $247 million) in the red leaves a required swing, at this point, of around 123 billion Yen. Yet after a recent history of slashing projections quarter by quarter, Nintendo won't budge this year — here's what the latest financial report says in terms of key selling points on the way.

For “Nintendo 3DS,” “Pokémon X/Pokémon Y,” released globally in October, showed extremely strong initial sales, further propelling the popularity of the system. In the overseas markets, Nintendo launched “Nintendo 2DS” which, by offering an all-new design without the 3D effect, is offered at a lower price point, and we strive to further accelerate sales and expand our audience in the coming year-end sales season.

For “Wii U,” we attempt to concentrate on proactively releasing key first-party titles towards the coming year in order to regain momentum for the platform. For the coming year-end sales season, we will release key first-party titles such as "Wii Party U” and “Super Mario 3D World,” and offer the Wii U hardware at an affordable price by bundling software with the system. We will also try new promotional activities such as a campaign where users can experience “Wii Fit U” free of charge.

Moreover, we strive to increase the profitability of our business by accelerating digital distribution of packaged software for both “Nintendo 3DS” and “Wii U” that we started last year and improving hardware profitability by reducing its costs.

Admittedly Nintendo has gone through the quietest six months of the year, and so much of the gaming industry revolves around the Winter and Holiday season — the packed software and hardware lineup testifies to that. Yet considering that Nintendo is standing by its projections, let's look at how many sales each quarter has brought for the 3DS and Wii U, and how far they still have to go to hit those targets.


Wii U Yearly Sales Projections / (Q1 & Q2 Results)

Hardware:

Q1 = 160,000 units
Q2 = 300,000 units
Q1 + Q2 = 460,000 units
9 million units (financial year target) - 460,000 = 8.54 million in remaining two quarters

Software:

Q1 = 1.03 million units
Q2 = 5.27 million units
Q1 + Q2 = 6.3 million units
38 million units (financial year target) - 6.3 million = 31.7 million in remaining two quarters

3DS Yearly Sales Projections / (Q1 & Q2 Results)

Hardware

Q1 = 1.4 million units
Q2 = 2.49 million units
Q1 + Q2 = 3.89 million units
18 million units (financial year target) - 3.89 million = 14.11 million units in remaining two quarters

Software

Q1 = 11.01 million units
Q2 = 16.39 million units
Q1 + Q2 = 27.38 million units
80 million units (financial year target) - 27.38 million = 52.62 million units in remaining two quarters


As the figures show, there's a lot of faith being shown in the Holiday and New Year periods — most prominently the former — bringing substantial increases in sales. The Wii U has less to do in simple numbers, but arguably faces a far greater challenge as it seeks to reverse poor momentum, a low install base and, at the same time, tackle the threat of established systems as well as the new PS4 and Xbox One. Battles over retail and advertising spaces are sure to be intense.

For the 3DS, the daunting numbers will largely be taken on by the launch of the 2DS, the phenomenally successful Pokémon X & Y and the upcoming The Legend of Zelda: A Link Between Worlds; none of these were released in time for the most recent results. Both X and Y sold over four million copies worldwide in just two days, and when you consider the hoped-for pick-up of new adopters to the 3DS family of systems over the Holidays, it's clear why Nintendo has some confidence.

With the Wii U, the financial report (as quoted above) specifically mentions Wii Party U and Super Mario 3D World as major software drivers, with promotions and bundles also in place to drive further interest; we've also argued before that reminding us of the Wii glory days with Wii Fit and Wii Sports in new iterations is clever. These are both products either exclusive to or being heavily promoted on the Wii U eShop, emphasizing Nintendo's stated goal that it wants to boost profit margins through improving its download platforms, while even in the physical retail arena the Nintendo UK store seeks to maximise profit by skipping third-parties entirely. Incidentally, as reported in our initial Q2 summary earlier today, it's in Europe and PAL regions that the most improvement in Wii U sales is required, evidently failing to pass 10,000 sales of the new system in six months.

When it comes to the year end target, we can't help but speculate that the release date of Mario Kart 8 will be pivotal. The Wii equivalent was an astonishing success and the franchise has a lot of sales power with a wide audience, and the rumoured April release would see the title miss this financial year. While Mario's latest adventure — along with the other major releases and bundle promotions — have decent odds of performing well, getting the karting adventure off the grid in late February / early March could give Nintendo a vital push towards its targets.

So how much could the Holiday season contribute? Below are the Q3 2012/2013 3DS results, a period in which the 3DS XL gained steam but the main software releases had either been on the market for a longer period or, frankly, didn't have the clout of a Pokémon / Zelda double act — New Super Mario Bros. 2 was high profile at that time.


3DS Hardware Sales (Q3 2012 / 2013) — 7.65 million units
3DS Software Sales (Q3 2012 / 2013) — 20.53 million units


Though such comparisons are tenuous with differing lineups, market conditions and a larger existing userbase to consider, what these numbers show is that significant units can be shifted in the Holiday season, merely emphasizing why Nintendo and its rivals put so much focus into the period. The full impact of X & Y, the 2DS, various 3DS models and promotions and A Link Between Worlds could, given the positive vibes and momentum of the platform, bring even bigger numbers and propel Nintendo towards its ambitious targets.

We're not sure such a comparison with last year on Wii U makes sense at any level, as that was the launch of the system. System launches often prompt impressive headlines and sell-outs in early days, and Nintendo certainly made positive noises about the Wii U's opening month. Such is the fluidity of the market and level of competition, the Wii U is frankly an unknown. Today's Q2 results were particularly lacking in key information, as beyond the struggles of Pikmin 3 to boost momentum almost on its own, the modest results were little surprise. With so much hope in the Holiday season, we merely have our own opinions and Nintendo's optimistic projections as guidance. In late January, with the Q3 results, we'll have a much stronger idea of where the Wii U stands.

Overall, Q2 wasn't great for Nintendo. Aside from nitpicking over assets totals, the picture generally got worse, though Nintendo's commitment to its original yearly projections suggest that it was expected. Let's bear in mind that in the last financial year Nintendo chopped its estimates in every quarter — there's clearly precedent to do so — yet has resisted doing so this time.

The numbers suggest an uphill struggle, of course, though not quite an impossible one. The 3DS looks like a strong bet to produce substantial sales; as for the Wii U, its fate in the near future is far from clear.

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