Nintendo's (OTC:NTDOY) latest earnings results showed continued growth in the Switch family of products, which drove a slight increase in total sales. However, profits fell sharply year over year, mostly due to foreign exchange headwinds.

Overall, the results -- released July 30 -- were in line with the company's expectations, and management maintained its previous guidance for the year. 

Two hands holding a Nintendo Switch gaming device.


Nintendo results: The raw numbers

Metric Fiscal Q1 2020 Fiscal Q1 2019 Change
Net sales $1.56 billion $1.54 billion 1.6%
Net income $151 million $281 million (45.8%)
EPS $0.16 $0.29 (45.7%)

Data source: Nintendo. EPS = earnings per share. Figures calculated using the average exchange rate in each quarter, as stated by Nintendo.

What happened with Nintendo this quarter?

  • Nintendo sold 2.13 million units of Switch hardware in the quarter, up 13.2% year over year. Hardware sales, including the 3DS handheld game system, made up 50.5% of total sales in the quarter. 
  • Software unit sales for the Switch increased to 22.62 million, up 25.9%. The best-selling title in the quarter was Super Mario Maker 2, which was released in June and has already sold 2.42 million units. Mario Kart 8 Deluxe, released last year, also continued to perform well, with 1.2 million units sold in the quarter.
  • Sales of 3DS hardware continued to slide, with unit sales of 200,000, down by nearly half year over year. Sales of games for the system came in at 1.48 million units, down proportionally with sales of hardware.
  • The digital business, including downloadable versions of games, had a big quarter, with sales up 65% year over year to 30.6 billion yen ($278 million). Digital sales made up 38.3% of total software sales in the quarter, up from 24.2% in the year-ago period. 
  • Sales of mobile games increased 10% year over year to 10 billion yen ($91 million). 

What management had to say?

It's going to be a busy fall release schedule for the Nintendo Switch, with The Legend of Zelda: Link's Awakening coming out in September. The new Zelda title will be followed by Luigi's Mansion 3 in October and two Pokemon games set for November releases. 

In a statement, the company said, "Many key titles are also expected to be released by other software publishers as we continue to offer attractive titles that are filled with variety."

Also, the upcoming launch of the Switch Lite is expected to keep hardware sales momentum going in the short term. The new Switch Lite, along with the upcoming game releases, are expected to offer players a variety of games and play styles so there is something for everyone.

As the company explained in the press release, "By offering consumers a choice of hardware that matches their preferred play style, we aim to further expand the installed base for Nintendo Switch."

Looking forward

Management maintained its previous outlook for full-year sales and profit. Total sales for fiscal 2020 (which ends in March) are expected to be up 4.1% year over year, while net income is expected to be down 7.2%. 

The Switch Lite is a significant near-term growth catalyst, but investors should also keep an eye on the growth in mobile games. In addition to the above-mentioned releases for the Switch this fall, Nintendo is also releasing two highly anticipated mobile titles this summer, Dr. Mario World and Mario Kart Tour. Dr. Mario World is already available and has a 4.5-star average rating in Apple's App Store.

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