Switch is a behemoth, but Nintendo will continue to feel pressure from investors

Today brought in Nintendo’s second quarter financial results, which would be easy to overlook with the understandable excitement of Animal Crossing: New Horizons version 2.0 arrives a day earlier. In a way, they are two-sided results, although inside Nintendo’s boardroom they can feel like they’re stuck in the middle.

First, below is some of our coverage that we will refer to in this article.

When you look at the area numbers like net sales and net profit, for a 6 months period, you will be forgiven for thinking that Nintendo is sailing and that investors would swoon to express their happiness. But the earnings of over a billion dollars are all relative, as you can see from the dips compared to the results of the 2020/2021 boom.

• Net sales – 624.2 billion yen (approximately $ 5.47 billion), down 18.9% from the previous year
• Operating profit – 219.9 billion yen (approximately $ 1.93 billion) – 24.5% less than the previous year
• Net profit – 171.8 billion yen (approximately $ 1.5 billion), down 19.4% from the previous year

It is the falls of more than 18.9% that have caused the recent noise from investors to be undoubtedly negative. Nintendo share price (via Bloomberg) closed down 1.66%, which is not a big deal, but its current value of 49,140 yen is still near a low over the past year, which is a continuation of a steady decline.

This can certainly be attributed, in part, to Nintendo’s strengths in the unique circumstances of 2020 turning into a weakness with the quite different problems of 2021. While the 2020 peak in demand for home entertainment played into the hands of the big N with Switch and Animal Crossing in particular – Switch Lite inventory slowed as stocks fell low for the standard model; In 2021, the picture is very different.

Not only are the unique circumstances at home from last year disappearing, but global chip shortages and manufacturing issues are also having an impact.

Not only are the unique circumstances at home from last year disappearing, but global chip shortages 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 earlier figure. already it represented a 4.5 million cut from plans at the beginning of the year. Nintendo basically cannot make enough systems to maximize 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 online fans who got carried away this year and expressed disappointment with the reveal of the OLED model, but investors as well. If the Switch was already underpowered when it hit the market alongside the Xbox One and PS4, it is now in a very far off position compared to the Xbox Series and PS5 systems. The ‘Triple-A’ ports will become less common, or some publishers will try to convince Switch players to buy ‘cloud’ versions, which don’t seem to work on a large scale. Until a new “generation” or more robust system emerges, the conversation won’t go away.

Also, Nintendo’s digital revenue is falling with everything else and trending static in a period where Microsoft, in particular, is changing the market with Xbox Game Pass. The negative reception of the Nintendo Switch online expansion pack adds to the feeling that Nintendo is struggling to find a successful and unique angle in that area. With the continued growth of the download game market, Nintendo’s offering doesn’t stand out, at least not in a good way.

However, on the bright side, the Switch is still popular and, because of that outdated technology, extremely profitable. As the first product to fully represent the merger of the home and handheld divisions at Nintendo, it has been shown to perform particularly well. Its sales will exceed those of the Wii U and 3DS combined, with the advantage that maintaining a main system is much more efficient for Nintendo teams. The Switch is catching up to the Wii and will overtake it soon, and its best-selling title, Mario Kart 8 Deluxe, has outperformed its blockbuster Wii equivalent. In an era of gaming on so many platforms, don’t forget about mobile devices, a PC space bigger than ever, cloud streaming, etc., Nintendo has been able to produce a success story that has elevated its place in culture. popular.

With more theme parks and a big movie on the way, and of course existing partnerships like major Lego releases, Nintendo is establishing itself beyond games. It’s easy to foresee a time, perhaps 18 months from now, when initiatives like these are combined with new hardware to elevate the business even further.

Still, overconfidence should be discouraged. We must remember that Nintendo went from the dizzying ups and downs of the DS and Wii to the relative struggles of the 3DS and Wii U; two consecutive “winning” generations is difficult to achieve.

The Switch generation has certainly been a success, and there will be more to come. 24.5 million sales projected as degrade due to production problems it is impressive regardless of the turn; demand is still very high. Nintendo is making a profit of over a billion dollars, again, which is impressive. However, the success is relative: 2020/21 set standards that simply cannot be reproduced.

For one thing, Nintendo is on a winning streak; on the other, there is a lot of room for improvement and growth. All eyes on the holiday season, then.