Reaction: Nintendo's Drop in Momentum Is A Bigger Concern Than Initial Financial Losses
Posted by Thomas Whitehead
Net sales and 3DS performance are down on last year
Nintendo's Q1 financial results have been announced and, in a continuation of the past couple of years, bring losses for the company. We'll repeat the nitty-gritty before assessing some other key points, yet we should perhaps take the positive spin that Nintendo is maintaining its projections for profit over the whole year. It's done this before and then subsequently revised projections down, though its acknowledgement that the relevant period — 1st April to 30th June — was a quiet spell of releases on Wii U, in particular, emphasizes that it was always likely to be a poor quarter.
Operating losses and net losses were pretty close to each other, suggesting that there weren't many other factors driving the coffers, for better or worse; there have been past occasions when exchange rates and clever accounting have delivered a small profit despite the struggles of the business. The net loss has come out at roughly $97.2 million / €72.5 million / £57.4 million, which is a fairly hefty chunk of money and leaves a major turnaround as a necessity for the remaining three quarters. The target net profit to be reached on 31st March 2015 is 20,000 million Yen, which is around $195.6 million / €146 million / £115.5 million.
The Fall and Holiday seasons will be vital, in that case, particularly for Wii U, while the 3DS will have Pokémon Omega Ruby & Alpha Sapphire as the major drivers in the Holiday period; Super Smash Bros. will naturally be a notable draw for both systems. There'll also be a lot of focus on amiibo, not just in terms of selling the toys as neat collectibles but to ensure that they serve their primary purpose — pushing forward additional Wii U sales.
While it's all merely informed speculation at this point, it certainly seems possible that Nintendo will have a good run at its Wii U targets. The home console has such modest goals for this year, in actual fact, that it's projections are looking entirely reasonable at this point; the figures below paint a clearer picture.
Hardware Sales (Q1) — 510,000 units
Hardware Sales Projection (2014 to 2015) — 3.6 million units
Sales Required (Q2 - Q4) — 3.09 million units
Target Reached To Date — 14.16%
Software Sales (Q1) — 4.39 million units
Software Sales Projection (2014 to 2015) — 20 million units
Target Reached To Date — 21.95%
Even with the excellent start for Mario Kart 8, the relatively substantial line-up for Wii U over the rest of the year gives good grounds for optimism. It's the 3DS picture, however, that has us a little worried.
Hardware Sales (Q1) — 820,000 units
Hardware Sales Projection (2014 to 2015) — 12 million units
Sales Required (Q2 - Q4) — 11.18 million units
Target Reached To Date — 6.83%
Software Sales (Q1) — 8.57 million units
Software Sales Projection (2014 to 2015) — 67 million units
Target Reached To Date — 12.79%
There's no surprise that the 3DS is comfortably out-performing Wii U, but it's had a poor Q1 by its standards, even with Kirby: Triple Deluxe and Tomodachi Life achieving "wide popularity" worldwide. It's also trending a fair way below its equivalent numbers for Q1 in the last financial year, as you can see below.
Hardware Sales (Q1 2013 / 2014) — 1.4 million units
Hardware Sales (Q1 2014 / 2015) — 820,000 units
Difference — 580,000 unit drop (41.4%)
Software Sales (Q1 2013 / 2014) — 11.01 million units
Software Sales (Q1 2014 / 2015) — 8.57 million units
Difference — 2.4 million unit drop (22.2%)
This adds to an overall picture of net sales for Nintendo dropping by 8.4% over the equivalent quarter last year; a sizeable fall away. It should be said that Spring and early Summer last year was a terrific period for the 3DS, with releases such as Animal Crossing: New Leaf, Fire Emblem: Awakening, Luigi's Mansion: Dark Moon and more delivering significant success. This year's lineup has struggled to emulate that period's volume, in both games and sales.
It must also be said that the respective software lineups for Wii U and 3DS also show the strain of supporting both consoles with recognisably limited third-party support. The Wii U list is looking rather healthy, but the portable has relatively slim pickings on the retail front, in particular. We can expect Pokémon Omega Ruby & Alpha Sapphire to sell millions of copies in short order, and it'll be interesting to gauge the performance of Super Smash Bros. in its handheld début, but it's light elsewhere; is Fantasy Life a title that can drive substantial sales? We're sure it'll succeed on some level, hopefully along the lines of Bravely Default, but those numbers we've provided above highlight the extent of the work still to be done by the 3DS to hit its targets. Nintendo must also be hoping that Capcom successfully delivers Monster Hunter 4 Ultimate before the financial year — 31st March 2015 — is out, too.
With trends of receding sales even kicking in last year, what can Nintendo do to keep the 3DS family healthy for another 2-3 years, assuming that's the plan? The impact of the 2DS was decent originally, but the cheaper tablet-form only shifted 210,000 units in Q1 in Europe and North America — it's not out in Japan — leaving it with life-to-date sales of 2.42 million units. Not bad, but hardly flying off shelves, and it leaves us wondering whether a reboot is needed in the next 12 months to give the 3DS family a final push to finish its generation strongly. The DS Lite made way for the DSi, let's not forget, which enhanced the offering with download games; perhaps finding a similar hook for a fresh 3DS model is needed. Perhaps a neat model with a little extra power under the hood and a sizeable storage solution — allowing the largest SD cards and bundling one with the hardware — could be a reasonable shout, with extra processing grunt helping existing games along and supporting some flashier late-life software for the system. That may be unrealistic, though we do have amiibo on the way to the portable next year, which could help if the right accompanying software also arrives.
With these trends the 3DS is sure to be a slight concern for Nintendo, especially as it's been so vital in minimising the financial damage caused by the Wii U. The company has a lot of work to do in sustaining its hardware business while also gearing up its QOL (Quality of Life) platform, which should be unveiled in this financial year — it's no doubt also planning hardware for the next generation, as always.
The pieces are in place to potentially get the Wii U on a stronger footing in the next nine months; perhaps the next priority should be to ensure that Nintendo's consistent and reliable 'sure thing', the 3DS, doesn't slip away in the meantime.