Today brought the Q2 Nintendo financial results, which would be easy to miss with the understandable excitement of Animal Crossing: New Horizons version 2.0 arriving a day early. In some ways they're results with two sides, though within Nintendo's boardroom they may feel like they're somewhat stuck in the middle.
First of all, below is some of our coverage that we'll be referring to in this article.
- Nintendo's Profits Remain Down But On Track, Despite Drop In Switch Sales Projection
- Nintendo Switch Has Now Sold 92.87 Million Units, And It's Catching The Wii
- Mario Kart 8 Deluxe Has Now Outsold Mario Kart Wii
- Here Are The Top Ten Best-Selling Nintendo Switch Games As Of September 2021
- Nintendo Reconfirms Release Windows For Major Upcoming Switch Games
When you look at the numbers for areas like net sales and net profit, for a 6-month period, you'd be forgiven for thinking that Nintendo is cruising and that investors would be falling over themselves to express their happiness. But billion dollar+ profits are all relative, as you can see with the declines compared to the boom results of 2020/2021.
- Net Sales - 624.2 billion Yen (approx $5.47 billion USD) - down 18.9% on previous year
- Operating Profit - 219.9 billion Yen (approx $1.93 billion USD) - down 24.5% on previous year
- Net Profit - 171.8 billion Yen (approx $1.5 billion USD) - down 19.4% on previous year
It's the 18.9%+ declines that have led to recent noise from investors undoubtedly being negative. Nintendo's share price (via Bloomberg) closed down 1.66%, which isn't that big a deal, but its current value of 49,140 Yen is still hovering near a low for the past year, which is a continuation of a consistent fall.
This can certainly be attributed, in part, to Nintendo's strengths in 2020's unique circumstances becoming a weakness with the rather different troubles of 2021. While the 2020 spike in demand for home entertainment played into the big N's hands with Switch and Animal Crossing in particular — Switch Lite inventory picking up slack when stock fell low for the standard model — in 2021 the picture is very different.
Not only are the unique at-home circumstances of last year dropping away, but a global chip shortage and manufacturing issues are also having an impact.
Not only are the unique at-home circumstances of last year dropping away, but a global chip shortage and manufacturing issues are also having an impact. Nintendo had to cut 1.5 million units from its Switch hardware projection as a result, with Nikkei suggesting the previous figure already represented a cut of 4.5 million from plans earlier in the year. Nintendo, basically, can't make enough systems to maximise its sales and profits.
And of course, on top of that, the elephant in the room is Switch 'Pro', or whatever you want to call the 'next' Switch. It wasn't just fans online that got carried away this year and voiced disappointment with the OLED model reveal, but investors as well. If the Switch was already lower in power when it arrived on the market alongside Xbox One and PS4, it's now in a very distant position compared to Xbox Series and PS5 systems. 'Triple-A' ports will become less common, or some publishers will try to convince Switch gamers to buy 'cloud' versions, which doesn't seem likely to work on a major scale. Until a new 'generation' or beefier system comes around, the conversation won't go away.
In addition, Nintendo's digital revenues are dipping with everything else, and have static trends in a period when Microsoft in particular is upending the market with Xbox Game Pass. The negative reception for the Nintendo Switch Online Expansion Pack adds to a sense that Nintendo is struggling to find a successful and unique angle in that area. With the continuing growth of the download gaming market, Nintendo's offering doesn't stand out, at least not in a good way.
Yet, on the positive side, the Switch remains popular and, because of that ageing off-the-shelf technology, extremely profitable. As the first product to fully represent the merging of home console and portable divisions at Nintendo, it's proven to work particularly well. Its sales will surpass those of Wii U and 3DS combined, with the bonus that maintaining one primary system is far more efficient for Nintendo's teams. The Switch is catching the Wii and will overtake it soon, and its biggest-selling title, Mario Kart 8 Deluxe, has surpassed its hugely successful Wii equivalent. In an era of gaming across so many platforms — don't forget mobile, a bigger than ever PC space, cloud streaming, etc. — Nintendo has been able to produce a success story that's elevated its place in popular culture.
With more theme parks and a major motion picture on the way, and of course existing partnerships like the major Lego releases, Nintendo is establishing itself further outside of gaming. It's easy to foresee a time, perhaps 18 months from now, when initiatives like those combine with new hardware to elevate the company further.
Still, over-confidence should be discouraged. We need to remember that Nintendo went from the giddy highs of DS and Wii to the relative struggles of 3DS and Wii U; two consecutive 'winning' generations is tough to do.
The Switch generation has undoubtedly been a success, with more to come. 24.5 million projected sales as a downgrade due to production issues is impressive no matter the spin; demand remains very high. Nintendo is turning billion dollar+ profits, again, which is impressive. Yet the success is relative — 2020/21 set standards that just can't be reproduced.
On the one hand Nintendo is on a winning streak; on the other, there's lots of room for improvement and growth. All eyes on the Holiday season, then.