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Nintendo’s Financial Picture Is Improving Despite Half-Year Operating Loss
Nintendo has reported its six-month financial performance, and things are improving. While the company is still showing red in the operating column, Nintendo’s performance year-over-year offers hope.
At the half-year mark, Nintendo is showing an operating loss of ¥215 million ($1.99 million). Nintendo has almost made up its first quarter loss of ¥9.47 billion ($87.7 million), posting operating income of ¥9.255 billion ($85.7 million) for the second quarter.
Nintendo’s net income for the quarter amounts to ¥24.224 billion ($224.31 million). At this time last year, Nintendo’s six-month net income was only ¥600 million ($5.56 million) and its second quarter showed a loss of ¥8.024 billion ($74.3 million).
The publisher’s biggest software performers are no surprise, with Tomodachi Life’s June 2014 release outside of Japan boosting sales to 3.12 million worldwide. Nintendo says Mario Kart 8 and Hyrule Warriors are both selling well, but no specific numbers have been disclosed.
Super Smash Bros. for 3DS reached 3.22 million units worldwide as of September 30. This includes early shipments of copies outside of Japan (the title was released on October 3 in the US and Europe).
Nintendo sold 610,000 Wii U consoles in the quarter, boosting current year shipments to 1.12 million. The company is holding firm on its projection to ship 3.6 million units by year’s end. Nintendo is just short of halfway to its software goal of 20 million units with 9.4 million sold at the six month mark.
On the handheld side, Nintendo shipped 1.27 million units in the 3DS/2DS family, bringing the current year total to 2.09 million against a forecast of 12 million. 3DS software sits at 23.3 million units, with a target of 67 million by March 31, 2015.
[Source: Nintendo]
Our Take
Let’s break this down a bit. First, the good news. Nintendo is turning its financial performance around. Year-over-year improvements are a good sign.
However, there are still concerns. Nintendo needs to have an unbelievably strong holiday season with aggressive pricing and bundling in order to reach its 3.6 million unit Wii U goal. At this point, it is also highly unlikely that the 3DS hardware and software targets are reasonable.
Attach rate is also something we need to look at as a forecast of performance. As we discussed during the Mario Kart 8 launch, 42 percent of Wii U owners purchased the title right out of the gate.
The reason I bring this up is the other huge title for Nintendo this fall, Super Smash Bros., won’t match that. The series does well, but it’s not nearly as potent as Mario Kart.
The attach rate on 3DS right now is a respectable (but significantly lower) 7.3 percent. I suspect this will be at least triple on the Wii U, simply because there is less competition for consumer dollars on that console. Even if so, that’s less than half of what Mario Kart 8 did in its first week (aligned against more current Wii U sales numbers).
I suspect Bayonetta 2 and Captain Toad will sell well to existing Wii U owners. Mario Kart 8 will motivate some new purchases around the holidays. But if Nintendo wants to hit its mark, it needs to become aggressive with its bundling strategy and continue the forward progress.
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