Nintendo cuts outlook as Switch Ages in a sluggish gaming market

(Bloomberg) — Nintendo Co. lowered its full-year earnings and revenue guidance, underscoring uncertainty surrounding its aging Switch console and the global gaming environment.

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The Kyoto-based company said it missed its console sales targets towards the end of the year, while foreign currency volatility also played a role. The company now expects operating income of 480 billion yen ($3.6 billion) for the year ended March, up from 500 billion yen previously. It forecasts net sales of 1.6 trillion yen versus 1.65 trillion yen.

Many investors had expected the company to raise its guidance thanks to twin games Pokémon Scarlet and Pokémon Violet, which became the fastest-selling Nintendo games in the company’s history. The company reported operating profit of 190.2 billion yen and revenue of 638.2 billion yen in the December quarter, both weaker than average estimates.

“The result was weak and that’s a surprise. The holiday season towards the end of the year indicated that hardware sales were not as strong despite the expanded supply, which also weighed on software sales,” said Hideki Yasuda, analyst at Toyo Securities. “It is now clear that the momentum of the Switch is pointing downwards.”

Nintendo has sat out the rally in tech stocks this year and may be stuck in the doldrums until it unveils a successor to its Switch gaming console, sales of which have slumped over the past two years.

The downgrade came despite strong sales of twin games Pokémon Scarlet and Pokémon Violet, which released in November. It was a successful end to the year as Splatoon 3 had set a new record for fastest domestic sales in Japan just weeks earlier. Game sales have helped support momentum for the Switch console, which demand is showing signs of slowing down.

Read more: Nintendo plans to boost switching power to meet resilient demand

Nintendo might be able to boost sales with new special editions of the Switch console, Yasuda said, tying in to blockbuster launches like the latest installment of Legend of Zelda.

“If Nintendo prepares at least two special editions, it can still sell more than 20 million units in the next fiscal year,” Yasuda said. “Without that, sales would be 18 million or less, which to be honest is still strong for hardware of this age.”

–With the support of Vlad Savov.

(Updates with company and analyst commentary from second paragraph)

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