Nintendo financials still in the red, but on the mend: an analysis on what the numbers mean

5 mins read
The Wii U: Nintendo’s most important hardware launch yet

Nintendo has released its first financial quarter results, and while the numbers still don’t look good, the company is on the path to reverse its horror previous year.

The results were in line with the company’s forecasts: a net loss of ¥17.2 billion ($220.4m / £142m). This is a substantial improvement on the previous year’s Q1 result of a ¥25.5 billion loss.

However, that seemingly-positive number is overshadowed by a second statistic: net sales for the period were down from ¥93.9 billion last year to ¥84.8 billion ($1.08bn / £698m). In other words, Nintendo sold less stuff. To be expected, given the fading Wii and DS stars, and the relatively slow 3DS uptake in certain regions, but a sign that the company’s fortunes have not completely been reversed.

On the 3DS front, the company sold 1.86 million 3DS units and 7.39 million software units. It’s still loss-leading on the hardware, but the increase in sales (over double the number of units sold in the same quarter last year) will help encourage third parties to start producing games for the console, handing licensing fees back to Nintendo.

By the end of July, the hardware will start to return a profit to Nintendo as well, which will be a boost.

So let’s put on the analyst glasses for a moment and look at what this means for Nintendo:

Overall, it’s a good sign. Nintendo is achieving its most important goal: it’s selling units of hardware. To have a hope of competing with the iPad and iPhone in earning the support of third parties, it needed to shift boxes. By comparison Apple sold around 50 million devices in its last quarter, and naturally the third parties are going to gravitate to the device that’s selling 50 times more than the competition.

Apple will remain the major concern for Nintendo over the coming year. The response to the Wii U has been uncertain so far, so Nintendo will be relying on the 3DS to bolster shareholder confidence.

I have every faith that the 3DS can become a global hit still, especially with the hardware revision on the way, and some major planned software releases on the horizon that should resonate with the mainstream audience as well as existing Nintendo fans.

The real question, as mentioned earlier, is the Wii U. Nintendo’s financial situation really needs that console to be an instant hit. It’s difficult to see where the market for the console lies, though – Nintendo fans will lap it up, of course, but that’s not going to be a group that will provide Nintendo the numbers it needs.

Given the software lineup features very limited third-party support beyond ports of games already on other consoles, and given that the casual gaming market is firmly in Apple’s palm, it’s going to be interesting to see how Nintendo tries to attract the broader audience.

The first key will be price – Nintendo <i>has</i> to loss lead with the Wii U. It has to get units in lounge rooms before the third parties are going to jump on board in full, and it has to build up a customer base before Sony and Microsoft go big with their next gen consoles.

And most importantly, Nintendo needs to find ways to broaden its own reach beyond its own hardware. I maintain that the best acquisition Nintendo could make right now is a talented mobile developer and set them the task of bringing smart phone and tablet games using key properties. This wouldn’t distract the main body of Nintendo away from its own products, but it would get a toe in a very lucrative pool of money, and give Nintendo an opportunity to speak directly to the audience that it has largely lost over the last year or two.

It’s going to be a very interesting year ahead for the Japanese giant. We all have our fingers crossed for it.

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