Nintendo’s Results Beat Expectations

Nintendo is going from strength to strength. According to its quarterly earnings results released yesterday, the company earned ¥154.1 billion, surpassing analysts’ median forecast of ¥136.5 billion. What’s more, the quarter has been profitable for Nintendo with operating profit of ¥16.2 billion Yen, unlike the one last year (-¥5.1billion).

The biggest driver behind the results is of course the stellar performance of Nintendo Switch. The platform has earned a total of ¥103.8 billion, accounting for 67.4% of the company’s total revenue.

While the 3DS platform remains Nintendo’s second largest revenue contributor, revenue fell to ¥31.1 billion this year from ¥34.9 billion in Q1 2016. With this in mind and the fact that the Wii U platform has now been bundled to ‘others’, whereas it was itemised as a separate revenue line one year ago. It suggests Nintendo’s current focus, momentum and where they plan to remain for some time.

Will the momentum last?

Sales of Nintendo Switch have been boosted by the incredible amount of coverage it received. The amount of attention, coupled with consumer curiosity, is naturally driven by the novelty of the device’s hybrid use case.

Over time however, the commercial performance of a platform is only as good as the content consumers can enjoy on it. Therefore, going forward, it will be of utmost importance for Nintendo to keep up the momentum in terms of exciting title releases.

For now, Nintendo’s line up mix addresses the right issues as it brings its hybrid games proposition to life fully. Nintendo has games to please the traditional console owner, with key partnerships such as Fifa and Rocket league announced. Simultaneously, the company is working on leveraging its hybrid positioning via the planned developments of Pokemon Go, Super Mario Odyssey, and Pokken Tournament. All are parts of popular franchise worlds upon which the company can build further distinguished propositions, developed with this hybrid proposition in mind.

While we don’t yet know what Pokemon Go on Switch will look like exactly, we imagine leveraging the hybrid proposition in ways such as creating an immersive console-like battle environment, but making the on-the-go hunting process a lot more mobile-like. If Nintendo can maintain a healthy mix of traditionally, popular and innovative title releases until it has a large enough catalogue of titles which fully leverage the hybrid proposition (and therefore create a fully fledged Unique Selling Point), my outlook for the console remains positive.

The counter point is that however good the E3 announcements were, Nintendo shouldn’t stop now. If it does, it will start losing the initial excitement and possibly the momentum.

It is probably still too early to put too much focus on Switch’s attach rate, but the early indicators are so far moving in the right direction. While the console’s lifetime attach rate is now approximately 2.99, in the last three months Nintendo has sold more than four games per console.

With a number of exciting releases in the calendar, this is likely to keep growing for the next couple of quarters. Monitoring the attach rate curve in the forthcoming months will be important because it can provide a useful indication of the demand we can expect from Nintendo’s upcoming subscription service for Switch. The more game titles people buy and play, the higher the multiplayer engagement will be,and therefore demand to pay for the subscription service due to launch in 2018.