Nintendo’s Q3 Financial Report Reveals a Return to Profitability

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Ahead of an expected financial briefing, Nintendo has released their latest financial results for the 3rd quarter of FY2015. New sales information brings mixed news as while Nintendo has another profitable quarter, overall sales are down from the same time a year earlier. Despite the triple finish of Smash Bros., Mario Kart, and a new Pokémon pair, sales of the 3DS and Wii U were down slightly from 2013’s results. Yes, even the Wii U.

For Q3, Nintendo had Net Sales of 271.521¥ billion yen, with an Operating Income of 31.40¥ billion yen. These numbers, including a Net Income of 45.215¥ billion yen, are profitable for the company. But as you’ll see, the profit didn’t come necessarily from strong hardware and software sales: it comes from the weakened yen versus the euro and the dollar.

The Wii U, for all the positive stories of great software and amiibo, struggled to sell on-par with the same numbers last year. For Q3, the platform sold 1.91 million, where in Q3 2014, it sold 1.95 million. The Wii U finally crossed the 9 million mark worldwide, taking two years to do what Sony’s PlayStation 4 did in less than a year. For the fiscal year so far, Wii U sold 3.03 million, upward from the 2.41 million a year before. In other good news, software sales on Wii U were up at 20.59 million units sold, from 15.96 million last year. Nintendo expects to meet their 3.6 million projection for Wii U sales this fiscal year, and has a 25 million software sales projection.

For 3DS, the results are slightly disappointing. The platform only sold 4.99 million units, down from last year. So far this fiscal year, the 3DS family sold 7.08 million, compared to the 11.65 million for Q1 to Q3 in 2013. For their earlier FY projection of 12 million, these results have required Nintendo to downcast their projection to 9 million units.

On the other hand, Software sales didn’t slide so severely, as they landed at 53.04 million units sold compared to 57.25 million a year before. So what’s the rationale behind the lower hardware numbers? According to Nintendo’s press release:

During the nine months ended December 31, 2014, for “Nintendo 3DS,” “New Nintendo 3DS/New Nintendo 3DS XL,” launched as the newest members of the “Nintendo 3DS” family in Japan in October, got off to a good start and continued to sell well. However, as sales of the “Nintendo 3DS” hardware in the United States and in Europe, where “New Nintendo 3DS/New Nintendo 3DS XL” were yet to be launched, did not grow sufficiently, the global sales of the “Nintendo 3DS” family hardware were 7.08 million units.

Hmm, now what did Satoru Iwata say earlier?

The overseas markets are different from the Japanese market in both their stages of popularization of Nintendo 3DS and their market characteristics.
The stage of popularization of Nintendo 3DS means the degree to which we have turned potential purchasing power into actual sales of the product in a market. In Japan, the total number of sales of Nintendo 3DS has reached nearly 17 million in the three and a half years since its launch. It is almost the same as the lifetime sales of GameBoy Advance released in 2001, which implies that it is reasonable that the sales of Nintendo 3DS have been temporarily slow moving in the Japanese market. This is one of the reasons we needed to bring New Nintendo 3DS/3DS XL to the market this year. To the contrary, neither of the cumulative sales figures of Nintendo 3DS in the U.S. nor Europe is more than that in Japan despite, based on the historical performance, bigger sales potential. In short, Nintendo 3DS is still at an earlier stage of popularization in these two markets.

Perhaps you should have launched the New 3DS in the west after all, eh, Nintendo? More telling is how well the New 3DS/XL are performing in Japan and Australia. In Australia, the New 3DS family sold 1.84 million units, with the XL version dominating 3:1 (1.26 million versus 580,000 for the smaller version). This statistic shows that Australia was a test market, and may reflect why North America isn’t getting the smaller New 3DS.

On the bright side, the 3DS family did cross the 50 million mark sold since 2011, proving that Nintendo can survive the storm of mobile devices encroaching on their turf.

Even though software sales were down from the same time last year, key software releases did manage strong attach rates and thus sold very strong. Nintendo reports that the usual suspects like Pokémon, Smash Bros., and Mario Kart 8 were top-sellers this past quarter. Mario Kart 8 has a 50% attach rate with the Wii U, and Smash has a surprisingly strong attach rate compared to past entry Smash Bros. Brawl from 2008.

As for the “Nintendo 3DS” software, “Pokémon Omega Ruby/Pokémon Alpha Sapphire” and “Super Smash Bros. for Nintendo 3DS” enjoyed robust sales with 9.35 million units and 6.19 million units sold respectively, while titles such as “Tomodachi Life,” “Mario Kart 7” and “Pokémon X/Pokémon Y” showed steady sales. There were also a number of hit titles from third-party publishers in the Japanese market. As a result, the global sales of the “Nintendo 3DS” software were 53.04 million units.

With respect to “Wii U,” Nintendo released two big titles, “Mario Kart 8″and “Super Smash Bros. for Wii U,” which enable family members and friends to have fun together in their living rooms. These titles sold 4.77 million units and 3.39 million units globally, and the global sales of the “Wii U” hardware and software reached 3.03 million and 20.59 million units respectively.

So, even though Nintendo has returned to profitability once again, it’s not for the best reasons in the world. The weak yen made exchange rates carry in their favor rather than excellent hardware/software sales, which is a shame. It would appear that all the hype in the world for Nintendo’s products doesn’t translate into real-world sales. Meanwhile, Apple just reported record sales of the iPhone line last quarter.

Curiously absent from the financial report altogether was amiibo sales. Last we heard, Nintendo said that amiibo sales were on par with Smash Bros. for Wii U in North America, but the lack of hard numbers in this report is concerning. Could the NFC figures be selling below expectations?

Nintendo is expected to have their financial briefing on January 29th. There, we should see more hard information about Nintendo’s operating profit, their strategy for cost-cutting, and perhaps amiibo sales information.

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Editor-in-Chief (Former)

A man with a plan. My favorite video game franchise is Pokemon, but his favorite video game is Resident Evil 4. I can also tell you trivial cartoon factoids.