Nintendo’s guidance seen as ‘mockery,’ sending shares lower

Bloomberg

Nintendo’s muted forecast for its financial performance in the current fiscal year stunned investors and analysts, sending shares sliding.
The company’s stock tumbled as much as 5.1 percent after it forecast operating profit of 260 billion yen ($2.3 billion) this year, well short of the 350.2 billion yen average of estimates. Analysts were particularly befuddled by the forecast that it will sell 125 million new software titles, significantly below market expectations for 161 million and lower than all but one of 10 projections tracked by Bloomberg.
“The way they guided software growth, it’s a mockery of the whole guidance word and the process,” Atul Goyal, a senior analyst at Jefferies Group, said on Bloomberg TV. “The way they’re guiding overall software sales to grow only 5 percent after having 85 percent growth last year is unreal. It’s a joke.”
Goyal said Japanese companies including Nintendo are known for making conservative estimates at the start of each fiscal period. But even by those standards, President Shuntaro Furukawa’s projection stands out amid a blockbuster games lineup this year and expectations for stronger hardware growth, which drives software sales. The company could be wary of repeating last year’s mishap, when it issued bullish guidance but cut it later, which sent the stock plunging.
Shares have rebounded this year on optimism that a cheaper version of the Switch, a stronger pipeline of games and a potential entry into China will help overcome last year’s missteps and broaden Nintendo’s customer base beyond dedicated fans. But Furukawa tamped down those expectations after the results, saying the China launch is far off and there’s no plan to unveil a new Switch at the Electronic Entertainment Expo in the US in June.
“As a general rule, we’re always working on new hardware and we will announce it when we are able to sell it,” Furukawa told reporters in Osaka. “But we have no plans to announce that at this year’s E3 in June.”
Analysts downplayed the comments, saying the company wouldn’t announce new hardware as it would cannibalise sales of the existing Switch. But they pointed to a drop in the company’s inventory as signs it could be clearing out existing stock to prepare for a new model.
Operating profit was 29.7 billion yen in the three months ended in March, below the 36 billion yen expected by analysts. The company shipped 17 million Switch consoles last fiscal year and forecast 18 million for the current period, compared with analyst projections for 18.5 million. It sold 119 million software units last fiscal year, slightly below analyst projections for 121 million.
The Switch sports a stronger software lineup this fiscal year, with two new mainline Pokemon games slated by the end of 2019.
Furukawa confirmed that Nintendo is working with Tencent Holdings Ltd to sell the Switch in China, but said there’s no timeline for a launch.