Tech Transformers

Nintendo’s comeback is starting to take hold as it forecasts a 121% profit surge this year

Key Points
  • Nintendo is aiming for operating profit of 65 billion yen this fiscal year, which if realized, would represent a 121 percent rise from the 29.4 billion yen operating profit it reported for the year ended March 31, 2017.
  • Nintendo said it is aiming for 10 million units of sales for the new Switch console this fiscal year.
Nintendo's forecasting a 121% profit surge this year

Nintendo said on Thursday that it expects profit for its current fiscal year to jump by 121 percent, hitting a seven-year high, thanks to strong sales of its new Switch console, older hardware and mobile gaming efforts.

The Japanese gaming giant forecast for the fiscal year ending March 31, 2018:

  • Net sales of 750 billion yen ($6.7 billion)
  • Operating profit of 65 billion yen
  • 10 million units of the Switch consoles to be sold

On Thursday, Nintendo reported earnings for the fiscal year ended March 31, 2017. The key figures are:

  • Net sales of 489.1 billion yen, a 3 percent year-on-year decline, but beating its own guidance
  • Operating profit of 29.4 billion yen, a fall of 10.7 percent year-on-year

Nintendo's forecasts, however, set it up for a strong year ahead. Its forecast of 65 billion yen of operating profit, if realized, would mark a 121 percent increase. It would also be the biggest profit since the fiscal year ended March 2011. The company is aiming to sell 10 million Switch units. The console, which went on sale last month, has already seen 2.74 million units sold, with 5.46 million units of software sold.

A statue of Nintendo's video-game character Mario
Akio Kon | Bloomberg | Getty Images

It's a positive announcement to kick of the fiscal year for Nintendo, after spending much of the previous 12 months trying to consolidate its business. The company has launched a number of mobile games including last summer's hit "Pokemon Go" and more recently "Super Mario Run". Mobile had been an area Nintendo had previously lost out on, but it is now making strong progress and expects it to be one of its "major pillars of profits" in the mid-to-long-term.

Thanks to its efforts in mobile, Nintendo's brand has also seen a strong revival, and the company has managed to tap into some of the nostalgia around its past games and consoles. Last year, the company released a Nintendo Classic Edition, which came with pre-installed games and cost $59.99. It quickly sold out with some going on eBay for as much as $5,000. Nintendo said the NES Classic launched to "widespread popularity".

And the knock-on effect has been seen in sales of Nintendo hardware. The company said the 3DS handheld console, which was released in 2011, saw a 7 percent year-on-year rise in sales. This was helped by strong titles such as "Pokemon Sun" and "Pokemon Moon", which gained popularity because of "Pokemon Go".

"The release of the smart device application 'Pokemon Go' led to increased sales of software in the Pokémon series and drove the Nintendo 3DS family hardware sales growth outside of Japan," Nintendo said in its earning statement.

Investors have been supportive of Nintendo's turnaround efforts with shares up 60 percent in the last 12 months. The stock also has 5 strong buy ratings, 10 buy ratings, 5 holds, 1 sell and 1 strong sell, showing the bias is generally positive towards the company's shares. The mean price target on the stock is 31,175 yen, which represents around 14 percent upside from Thursday's close, Reuters data shows.

"The brand has been reinvigorated and now with that revitalized branding of the licenses, this year and into next year is about pushing on with new differentiated cutting edge tech," Neil Campling, head of global technology, media and telecom research at Northern Trust Capital Markets, told CNBC by phone.