Nintendo swung to profit in its financial first quarter, beating analyst expectations, boosted by a strong performance from its new Switch console and hit new Mario and Zelda games.
The Japanese electronics giant reported the following results:
- Revenue of 154.07 billion yen ($1.37 billion) versus expectations of 136.53 billion yen
- Operating profit of 16.21 billion yen versus analyst forecasts of 9.52 billion yen
The revenue figure marks a nearly 150 percent year-on-year rise, while Nintendo returned to an operating profit after reporting a 5.13 billion yen loss in the same period last year.
Nintendo said it sold 1.97 million units of its hybrid Switch consoles in the quarter through June, which is down from the 2.74 million in the first quarter. Altogether Nintendo has sold 4.71 million Switch consoles, and despite the slowdown, maintained its target of selling 10 million in this financial year.
Demand for the Switch appears to be strong, with reports suggesting that Nintendo is struggling to keep up. In May, the Financial Times reported that Nintendo has ordered a production increase of the Switch to meet demand for the holiday period later this year. And in March, the Wall Street Journal said Nintendo had decided to double its planned Switch production for the year ending March 2018.
Earlier this month, a note by Wedbush said that it expects Nintendo to retain its 10 million sales target for the Switch though this could be increased by 1-to-2 million units.
Analysts attributed the fall in Switch sales in the June quarter to the supply constraints but were not that concerned as overall earnings were strong.
"I think this basically is a testament to how well the Switch is doing. The demand for the Switch is real. It's not sold out only because Nintendo can't produce enough units, but because the demand for the device is making it scarce," Serkan Toto, CEO of Japan-based video game consultancy firm Kantan Games, told CNBC by phone.
Mobile games strong
Nintendo struggled in past years as the casual gamers it once attracted began moving to mobile. It was a trend the Japanese gaming giant missed. But in the past couple of years, Nintendo has been investing in mobile games.
Last year, viral hit "Pokemon Go" which was developed by Niantic was released. It licensed the characters from The Pokemon Company, which Nintendo has a stake in. And in December, Nintendo launched its own game "Super Mario Run".
It's still the early stages for Nintendo in mobile but the shift is paying off. Revenue from mobile and its intellectual property (IP) licensing category hit 9.06 billion yen, up nearly 450 percent from the 1.6 billion yen recorded in the same period last year. And there could be more successes to come given that Nintendo hasn't even brought some of its more well-known characters onto the small screen.
"These numbers are very stable, but it's the tip of the iceberg of what Nintendo could do using the right IP and business models in the future. But it's already promising," Toto said.
Investors have rewarded the company. Nintendo shares have been on a tear and are up over 45 percent year-to-date. Earnings were reported after the market close in Japan so share reaction will be seen on Thursday morning.
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