Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Nintendo Crushes Earnings on the Back of New Switch Models

By Billy Duberstein - Nov 6, 2019 at 7:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Consumers love the Switch, its new models, and its associated games.

One of the better-performing consumer discretionary stocks this year has been Japanese game-maker Nintendo ( NTDOY 3.19% ). Following the recent release of its second-quarter earnings report, which trounced expectations, Nintendo’s stock is now up around 47% on the year in 2019.

Nintendo has been riding a wave of success on the back of its Switch console gaming system, which doubles as both a console and a hand-held device. Though it was first introduced some two years ago, the past quarter saw the introduction of two new models: a Switch with long battery life, and the handheld-only Switch-Lite.

In addition, Nintendo also released several big software titles for the Switch this year, including Super Mario Maker 2 in June, Fire Emblem: Three Houses in July, and The Legend of Zelda: Link's Awakening in September. The company also released two new mobile games, a smaller segment where the company has yet to gain much traction. These were Dr. Mario World in July and Mario Kart Tour in September.

A young gamer in glasses holds his Nintendo switch viewed from below with his eyes peering over.

Nintendo reported strong earnings. Image source: Getty Images.

The Switch is on fire, replacing the 3DS

In the six months ended in September, Nintendo recorded fantastic sales growth, spread evenly across Switch software and hardware.

Nintendo Segment

Growth, six months ended Sept. 30

Switch hardware units


Switch software units


Switch download digital software sales


3DS hardware units


3Ds software units


Mobile sales


Total sales


Data source: Nintendo consolidated financial highlights. Table by the author.

As the figures indicate, the older Nintendo 3DS system is nearing the end of its life cycle, which began in February 2011.

While overall sales only grew 14.2%, strong software sales led to margin expansion, with operating profit increasing a whopping 53.4% over the year-ago period. Net income actually came in below that of last year’s period, but that was because of a large foreign currency charge due to the value appreciation of the Japanese yen.

But not all is perfect in Mario world

While the Switch platform is an undisputed success, it’s interesting that mobile sales only grew 6.4% year over year, despite the release of Mario Kart Tour, which was so popular at the outset that it broke Nintendo’s servers on its launch day. That’s likely because Mario Kart Tour came out just five days before quarter-end on Sept. 25, and operates on a “freemium” model, so players might not have had enough time with it to pay for in-game extra features that will be reflected in sales totals. Nintendo hasn’t had as much experience with mobile games as other companies, so it may take a while for the video game giant to figure out how to monetize mobile versions of its popular titles. Notably, the initial release didn’t include a multiplayer mode, but that should be coming shortly in a software update.

In addition to the tepid mobile growth, it’s somewhat confusing that, despite crushing first-half estimates, Nintendo management didn’t raise full-year guidance (its fiscal year ends in March of 2020). This could be mere conservatism on management’s part after 2018 Switch sales under-shot estimates.

Another reason could be that Japan increased its consumption tax from 8% to 10% starting in October, which likely pulled sales into the last few weeks of September. In fact, the company’s earnings presentation did note a surge in Switch sales in the two weeks prior to the end of September, before normalizing in the first three weeks of October.

bar graph showing weekly Switch sales surge at end of September and normalizing in October.

Image source: Nintendo.

Going forward

Nintendo now trades for about 30 times trailing 12-month earnings -- but remember, that includes a large foreign currency charge that dramatically hit net income this quarter.

Aside from that and the monetization issues around mobile gaming, most of Nintendo’s business is quite strong. Switch sales are up, as are related software sales coming from Nintendo’s “evergreen” franchises like Super Mario, Zelda, Pokemon, and Fire Emblem. The current quarter will also see several new titles launch for the holiday season, including Luigi’s Mansion 3, Pokémon Sword, Pokémon Shield, and Ring Fit Adventure, a new Switch game with an aerobics element.

This consistent innovation around beloved franchises and characters should keep Nintendo’s stock heading upward, as we are still only in year three of the Switch console cycle and console cycles usually last 10 years or so.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nintendo Co., Ltd. Stock Quote
Nintendo Co., Ltd.
$57.75 (3.19%) $1.78

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.