It’s a busy week here at the site and on socials, partly because the earnings calendar is packed. So, there’s no time to waste, I’ll get right into the topic at hand.
Nintendo reported its second quarter of its fiscal 2024 yesterday, which showcased a fantastic first six months. With sales rising more than 20%, this time frame ended up being the single biggest first half of a fiscal year for revenue since the Switch launched back in 2017.
With a couple of caveats. As always.
First, the results were mostly driven by the record first quarter that I wrote about in August. When focusing strictly on the April to June period, revenue and operating profit declined 4% and 20%, respectively due to a relatively light launch schedule and lower quarterly Switch hardware output than a year ago.
Beyond these dynamics, Japan is currently seeing its worst local currency depreciation in decades. Which is always worth mentioning in this context, and Nintendo specifically cites the yen movement in its report, because it has a notable effect on Japanese companies that operate globally.
Echoing this, Switch hardware unit shipments totaled 2.93 million in the quarter. That’s off 10% from the 3.25 million this time last year. Still, it pushed Switch lifetime shipments to 132.46 million, making it only the third gaming hardware ever to pass the 130 million mark.
In terms of new games, Pikmin 4 was Switch’s big title during the quarter, and has shipped 2.61 million copies since June. This amount means it’s already the highest-selling game in the franchise to date. Add it to the list of titles impacted by the Switch effect, which often boosts new titles in existing series to all-time sales records.
The Legend of Zelda: Tears of the Kingdom also contributed to software and continued its monumental run, now approaching the 20 million unit milestone in just its second quarter. The latest mainline Zelda is a smash hit, already at almost two-thirds of 2017’s classic Breath of the Wild lifetime sales!
In what I’d argue is the most important part of the report, and something I predicted would happen during my Q1 article, Nintendo raised most of its guidance for the full financial year. Management now expects higher revenue, operating profit, software unit shipments and will pay a higher dividend to shareholders. The only thing it didn’t raise was Switch hardware shipments, which it “only” reiterated at the current level of expectation.
“For hardware, by continuing to convey the appeal of Nintendo Switch, we try not only to put one system in every home, but several in every home, or even one for every person,” the company said related to its forecast. “Another objective is to continually release new offerings so more consumers
keep playing Nintendo Switch even longer and we can maximize hardware sales.”
Here’s quick bonus for something that happened after this financial period: Nintendo announced today that Super Mario Bros. Wonder sold-thru 4.3 million units to consumers during two weeks on sale. This makes it the fastest-selling Super Mario title, at least since the firm began tracking this stat in 2004. No wonder execs are more optimistic after yet another historic Switch launch.
Just like Drill Mario would, I’m now going to dig deeper into the numbers.
I’ll first address its quarterly earnings then expand to the 1st half and annualized figures for greater context on how Nintendo’s business is faring over time.
For the second quarter alone, revenue came in at $2.38 billion or 4% lower than a year back. Operating profit dropped 20% to $670 million. Which checks out, due to the big release of this period being Pikmin 4 plus Switch has almost achieved hardware saturation in its likely last year.
Taking the full six months into account, Nintendo achieved $5.65 billion in sales and $1.99 billion in operating income, increases of 21% and 27% respectively. That sales number is above even Switch’s best year in 2020, and operating profit is not far off from that year’s high either.
While this is certainly bumped up by out-performance of Tears of the Kingdom and the Super Mario Bros. Movie, slightly higher hardware units and early upside from Pikmin 4, there’s also the element of yen depreciation. While currency movement is usually more temporary, Japan’s currency weakness has been ongoing for many quarters now.
Taking a look into product categories, Nintendo’s hardware business accounted for around 41% of sales during both the first quarter and six months. That’s relatively constant since last year, when it was at 40%. Software accounted for the remaining 59% this time around, where it was 60% last year. A system-seller like Zelda plus certain bundles continue to prop up console sales this late in the cycle.
From a regional perspective, sales shifted out of Japan and into other territories. Both the Americas and Europe stayed the same since last year, contributing 44% and 23%, respectively. Japan declined from 24% to 21%, while what Nintendo classifies as Other jumped up from 9% to 12%.
Both digital and Intellectual Property (IP) related sales experienced the most growth during Nintendo’s first fiscal half, even if these areas still don’t represent a major portion of sales. Digital revenue output moved up 16%, and accounted for exactly half of the company’s Q2 dollar sales, virtually the same as the 51% a year ago. The mobile and IP-related category more than doubled, jumping 133%. Growth came more so from the IP side than mobile, as The Super Mario Bros. Movie stands at over $1.36 billion in box office earnings.
Combining the last four quarters, the company’s trailing 12-month revenue is currently at $13 billion. While down slightly since last quarter’s $13.12 billion, it’s up 6% year-on-year. Annualized operating profit is tracking towards $4.2 billion, down only slightly compared to both Q1 and last year’s second quarter.
If the revenue number holds, and the firm hits its latest target, Nintendo could achieve the highest annual sales since Wii’s massive popularity in 2008, even with the Switch hanging on during its twilight years.
Pulling a similar passage from my last Microsoft write-up, I’d like to compare industry peers to get a sense of where all of them stand right now. Sony, which reports results tomorrow, had PlayStation revenue upwards of $27.8 billion at last count. Tencent came in next at $25 billion, then Microsoft generated $15.78 billion before the Activision Blizzard deal closed. This is where Nintendo slots, at $13 billion. One thing to note is that Nintendo is more profitable than Sony, which is the only firm out of these four that reports profit numbers for gaming, and I’d imagine it has better margins than Microsoft’s Xbox business with its big investments and product expenses lately.
I mentioned a bit about Nintendo’s hardware results up front, I’ll now get into a more detailed breakdown of this product category.
The second quarter saw those 2.93 million Switch shipped to market, compared to 3.25 million a year ago. This tracks, notably after just how many units moved during the prior quarter, including a desirable special edition for Zelda.
Now, during the first six months of fiscal 2024, Switch sales moved up 2% to 6.84 million. While not quite at the highs of the Switch’s glory days in 2020 to 2022, it is above earlier shipments figures before 2019 during the corresponding time frame.
This shows the utter resilience of Nintendo’s hardware appeal, and making games that translate well from console to handheld. Plus, it highlights how the move to an OLED model replacing the base model drives people to picking up multiple devices for themselves or household members.
Out of those 6.84 million for the first half, 4.69 million were OLED versions. That makes up 69% of the total, and it’s 32% higher than last year’s figure. In fact, it’s the only model to grow over this time frame, considering the base model dropped 44% to 1.25 million units and Switch Lite moved down a more modest 2% to 900K.
This continues to life the lifetime Switch hardware figure, now standing at that 132.46 million. Which is still wild to write, mainly because of how it’s outpaced all expectations. Even mine and Nintendo’s itself. Thing is, while it’s secured a Top 3 spot on the all-time best-selling console list, I don’t see it moving up any further assuming Super Switch is out within the next 12 months. There’s still a 21.56 million gap between Switch and Nintendo DS at 154.02 million.
Then again, the Switch has exceeded all expectations thus far. It might surprise me.
One additional item that I found disappointing from Nintendo’s report is there wasn’t any further detail on console sell-thru to consumers, which it has recently added to its explanatory material. This is likely because it’s trending downward. Still, I’d rather the more data, the better. Maybe next time.
I’ll now take a similar look at the current software dynamic for Nintendo, the segment that makes up the majority of its business right now.
Overall Switch software unit sales in the quarter totaled 44.87 million, down 14% from 54 million. On the flip side, 1st half game sales rose 2% from 95.41 million to 97.08 million. It helps to have one of the highest-rated titles of all time launched in this period in Tears of the Kingdom.
These results drove lifetime software sales for Switch to pass yet another major milestone, this time surpassing 1.1 billion copies sold. It’s now upwards of 1.13 billion, an astonishing result. For perspective, the DS and Wii never reached a billion, even with the former selling many more hardware units. The sheer number of games that Switch owners buy, especially first party, is higher than any Nintendo device in history.
Speaking of big sellers, the number of games that have shipped over a million units during the current fiscal year jumped up a sizeable amount. There were only two back in Q1, just Tears of the Kingdom and the ever-present Mario Kart 8 Deluxe. The Q2 number was 16. Out of these, 12 were published by Nintendo while 4 were produced by third parties.
Chief among them being Pikmin 4, hitting that all-time high for a Pikmin franchise game of 2.61 million units in a single quarter. The previous record holder was Pikmin 3 Deluxe, another Switch title that has moved 2.4 million copies since October 2020.
I will point out that while the latest title has the best lifetime unit sales already, it currently has a lower attach rate than its predecessor partially because of just how many Switch have flooded the market. Pikmin 3 sold 1.28 million, or 9% of Wii U console sales, while Pikmin 4 stands at a 2% attach rate. For the time being.
Separately, it’s hard to overstate the pure magnitude of Tears of the Kingdom. The title sold another million units in the quarter ending September, bringing lifetime sales to 19.5 million. It’s not often that a game approaches 20 million units in a couple quarters. Thus, the title held its position as the 9th best-selling Switch title and will easily surpass Super Mario Party‘s 19.66 million next quarter.
I can’t write about Nintendo earnings and not mention Mario Kart 8 Deluxe, the game that never stops selling. It sold more copies than the brand new Zelda title last quarter, moving over a million and a half in Q2 alone. This game is almost a decade old, people! After this latest boost, the Switch version has officially passed 57 million sold to date.
Elsewhere in terms of new milestones, 2022’s Nintendo Switch Sports scored a new mark, passing 10 million to settle at 10.77 million.
While Nintendo usually reports on shipped numbers, it did share some insight into sell-thru to consumers. In addition to the aforementioned record launch for Super Mario Bros. Wonder, Pikmin 4 has sold-thru 2.5 million units globally as of last week, the largest start in series history.
As for engagement and player stats, Nintendo hit us with an update on Switch Online memberships and (its made-up stat of) Annual Playing Users, both of which are growing at this time as the user base expands. Switch Online subscribers now stand at 38 million, up from 36 million as of September 2022. Annual Playing Users, which is the number of people who have played a single game on Switch in the last 12 months, moved up to 117 million. It was 116 million in Q1, and 108 million last year.
Even considering the latest quarter trending down a bit, Nintendo bucked the trend of an aging console during the first half of fiscal 2024, turning it into a historic one for top-line sales compared to all others since the Switch first launched. It certainly helped to have a blockbuster movie to supplement traditional revenue streams, capitalizing on the quality of its big brand identities.
For a console manufacturer, this highlights the need to diversify. Especially when deep into a hardware cycle at a time when investment is ramping up for the next big device and its corresponding launch lineup.
Nintendo has mixed success in the past leveraging IP in various types of media. The last few months show it’s possible, between theme parks and film, proving there’s major upside as long as they instill that magic that has defined the company for generations and appeal to a multi-generational audience. Cross-media is a core factor behind what’s becoming a banner year for the publisher. And now with the announcement of a live-action Zelda flick in development, it will shape the company’s future income as well.
Here’s where I’ll look at that updated forecast, moving into the pivotal back half of the 2024 fiscal period.
Executives increased annual guidance for overall revenue by 9% to $11.2 billion. Operating profit guidance rose 11%, now expecting $3.55 billion. Additionally, it now expects to sell 185 million units of software during the full year, 3% higher than its initial forecast.
I honestly think the financial targets are still too conservative, based on the annualized numbers I referenced earlier. I think management will slightly increase revenue and profit estimates in its next report.
The firm also confirmed annual Switch hardware unit sales guidance at 15 million. That means between the holiday quarter and the first calendar year quarter, it needs to move 8.16 million more units. For context, last year’s December quarter alone saw sales of 8.23 million. While the Switch is a year older, I believe Super Mario Bros. Wonder among other title launches, a new Red Mario OLED model and a Super Smash Bros. Ultimate bundle can produce enough sales to beat the current estimate.
Even though I’m bullish, I’m slightly less upbeat than I was three months ago. I will slightly reduce my target, now expecting between 16 million to 16.5 million in the year ending March 2024.
2023 has been a huge year for Nintendo’s first-party lineup, across mainline Zelda and Mario titles alone, and I believe it has a decent supplemental slate for the holidays that can lead to financial targets being beat. Detective Pikachu Returns, WarioWare: Move It!, a remake of Super Mario RPG plus more content for Mario Kart and Pokémon titles will act as a second helping to the ongoing main courses of Zelda and Mario.
As for what’s ahead in 2024 and beyond, notably for the console transition, I’ll address those in a future article. For now, that does it for Nintendo’s latest quarter. Stay tuned this week for Sony’s results, and hop over to the earnings calendar to track everything this season.
Thanks for reading! Take care, all.
Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥140.96.
Sources: Bloomberg, Company Investor Relations Websites.