Nintendo at a Loss as Consumers Wait for E3

Nintendo posts more losses while Sony and Microsoft consoles keep selling. Will E3 shift the power dynamic?

May 12, 2014 at 11:00PM

Image by Flickr user

For the third year in a row gaming corporation Nintendo (NASDAQOTH:NTDOY) has posted losses, this time for $457 million. The company's latest game console, the Wii U, has posted only 6.17 million units sold in 18 months, numbers easily matched by competitors Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) despite their products selling for only a third of the time.

Can Nintendo survive? With its large cash reserves and forecasted operating profit of $394 million for this fiscal year, it will continue. But can Nintendo survive as a game company? As the market shifts in favor of mobile interests (Nintendo's mobile device sales, by contrast, were also below projections), Nintendo's model looks less certain. Conferences like the 2014 Electronic Entertainment Expo (E3) could provide valuable clues for future of the gaming industry's biggest players.

Cornered by the big dogs
A look at Nintendo's state would not be complete without a glance at primary gaming competitors Microsoft and Sony. In early May Sony released some bad news of its own: an additional $200 million expected loss for its fiscal year, up to $1.27 billion in total losses, coinciding with the sale of its PC segment and spin off of its TV division. Stock slumped to around $17 before recovering to nearly $18.

But Sony's gaming division, where it offers direct competition to Nintendo, is anything but sagging: It has sold more than 7 million PlayStation 4 consoles around the globe, and CEO Kazuo Hirai has underlined Sony's intention to focus more on games, mobile devices, and image sensors to shore up future revenue.

Microsoft, with around 5 million units of its own Xbox One console sold, falls behind both Sony and Nintendo, but with faster adoption rates than the latter :the Xbox One should overtake the Wii U by the end of the year with a projected 9 million units sold. While investors remain curious about an Xbox spinoff, Microsoft is currently pushing even more content toward its gaming division with efforts like original Xbox TV shows. Microsoft shares have sunk from above $40 to below $39 in May, potentially due to reports of Bill Gates selling off his own shares and general doubt in tech stocks.

Eyes on E3
E3 hits between June 9 and 12: Many are waiting for the news releases, demos, and promises that major players save up for E3 to show consumers and investors alike where they are headed for the next year.

This could be a key chance for Nintendo to soothe fears ... if the company was planning on a traditional press briefing. For the second year Nintendo will skip the briefing. The 2013 version of this strategy failed to gain traction, overshadowed by the new console announcements from Sony and Microsoft. Unless Nintendo is prepared to announce notable new games, this strategy presents a similar dilemma.

Microsoft is expected to announce its own share of new titles and sequels to popular games, including Halo 5 and Quantum Break. Sony, meanwhile, has declared its intentions to support the indie game industry with its PS4 and mobile devices like the PlayStation Vita, but the company is likely to have a few big titles up its E3 sleeve as well, such as Uncharted 4 and DriveClub.

Perhaps the Nintendo should use its cash stores in a big move like buying Square Enix. Perhaps its new work in health-care tech can renew its profitability numbers. Nintendo is not out of options, but without clear signs of a new direction, its competitors are the ones that stand to gain in coming months.

Editor's Note: The initial version stated that Nintendo wouldn't have a physical presence at E3. That's incorrect; Nintendo will not have a traditional press briefing but will be at E3. This version has been amended and The Motley Fool apologizes for the error.

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Tyler Lacoma has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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