For the third fiscal quarter ending 12/31/22, Nintendo announced revenue declined 8% to ¥638,204.  Switch unit sales declined 23% in Q3 to 8.2 million.  For the full fiscal year ending 3/31/23, Nintendo lowered its forecast for Switch hardware units to 18 million.

Software sales for Nintendo were only down 3% in the third quarter.  However digital software sales were up 10% and downloads of packaged software was up 28% compared with the previous year quarter.  Pokemon Scarlett/Violet had a record launch with 10 million units sold in the first three days and 18 million units in its first seven weeks.


It is important to note that year-over-year revenue comparisons are tough for Nintendo because of currency fluctuations.  Nintendo did 77% of revenue from overseas and with the high relative valuation of the US dollar, foreign money has come into Japan at a favorable exchange rate.   

What is clear is that Nintendo Switch hardware sales are on a steady decline.  Nintendo’s original forecast in early 2022 was for 21 million Switch units to be sold in fiscal 2023.  At the time, DFC Intelligence thought this number was too high as we were estimating 18 million units.  The latest forecast from Nintendo is right at the original DFC estimate of 18 million.

The question becomes: what will Nintendo do in terms of new hardware?  This will be a major subject of speculation, but it may be a while before we get an answer.  Nintendo made a big mistake by announcing the Wii U system back in mid-2011, nearly 18 months before it launched.  Our expectation is Nintendo has learned from this mistake and will keep its card close to the vest this time around.

The good news for Nintendo is that first-party software sales continue to be strong and perhaps more importantly the company is starting to develop a live services business.  Splatoon 3 sales in Japan accounted for 63% of overall sales for the end of 2022.  In comparison, the new Pokemon titles had only 30% of their sales in Japan.

Splatoon 3, along with Mario Kart 8 Deluxe, are early drivers of what could become a lucrative live services business for Nintendo.  By the end of 2022, Mario Kart 8 Deluxe passed 50 million units which is a clear indicator of a large opportunity for more franchises to follow this model. Nintendo Switch Online is looking like less of a third-tier product.   

Nintendo is an initial stock in the DFC Intelligence Video Game Stock Portfolio.  Like many companies in the index, the latest news is likely to cause a short-term decline but that may best be viewed as a buying opportunity.  The expectation is that investors will start to realize Nintendo has growth prospects in its slow to emerge games as a service business.

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