Nintendo’s intransigence could be fatal.
- Nintendo reported another dreadful set of results as it missed its own forecasts made just three months ago.
- Q4 14A revenues / Net income were JPY72.6bn / LOSS JPY33.4bn compared to consensus at JPY86.1bn / LOSS JPY27.9bn.
- 2.72m WiiU units were sold over the last 12 months missing the companies already lowered forecast of 2.8m.
- Forecasts for the coming fiscal year are typically optimistic with 3.6m WiiU units and 12.0m 3DS units expected to ship in the next 12 months.
- From this and software titles the company expects to earn revenues of JPY570bn and net income of JPY20bn.
- The state of the gaming market is such that both of these products are under threat of extinction but Nintendo’s management refuses to accept that reality.
- The Wii U sits in-between the serious console market, which has done quite well following new platform launches, and the casual gaming market dominated by smartphones and tablets. (see here)
- As a result, there is no real reason to buy a Wii U and its price is such that only someone desperate for the Nintendo gaming titles would buy it.
- I suspect that a lot of these buyers have already bought a Wii U and so 2015 is likely to see a large decline in shipments rather than the 32% growth management is forecasting.
- The decline of the 3DS is likely to be much slower but its appeal is gradually being eaten away by casual games on smartphones and tablets.
- Hence, Nintendo must act and it must act now.
- Its core assets are its software brands and the recognition and love these have with 20 years of video game players.
- However there is a new generation out there and to be kept alive these brands have to be made available on iOS and Android.
- Otherwise there is a very real risk that gamers begin to forget about Mario and his chums.
- This would mean far less traction on iOS and Android in the future than Nintendo would be able to achieve now.
- Revenue per unit would be a fraction of what it is today but with an addressable market of over 1bn units there could be tens or hundreds of millions of sales made.
- Historically, hardware has been great for Nintendo and as many companies have found, giving up on hardware is very hard to do.
- This is because it will initially result in revenues becoming a fraction of what they once were.
- However, as an investor, I prefer much smaller revenues with profit and cash flow as opposed to larger revenues with losses and cash outflow.
- Nintendo has JPY341bn in the bank which means that it can survive these losses for some considerable time and do nothing.
- From the strategies outlined at today’s results briefing it is clear that Iwata-san intends to do just that and will avoid doing the one thing that can save his company.
- Japanese managements have a habit of holding onto losing strategies until it is too late and this looks to be is no exception.
- By the time he throws in the towel any chance at a sustainable future may have long since passed.
- Investors should leave now as 2015 is shaping up to be an awful year.
Blog Comments
tatilsever
May 8, 2014 at 7:47 pm
> “The state of the gaming market is such that both of these products are
> under threat of extinction but Nintendo’s management refuses to accept
> that reality.”
They may indeed be in denial, but Nintendo may also be in the process of porting Wii games to PlayStation secretly. Announcing that effort now would gain kudos from analysts, but would kill off its already struggling console hardware and game publishing business without any new revenue stream for some time to come. I am pretty confident Elop has proven the folly of making grand declarations of upcoming consumer tech transitions too early pretty well. 🙂
Andy Bates
May 16, 2014 at 11:54 pm
Nintendo’s intransigence could be fatal.
“2.72m WiiU units were sold over the last 12 months missing the companies already lowered forecast of 2.8m.”: And yet higher than your prediction of 1m for the fiscal year.
“The state of the gaming market is such that both of these products are under threat of extinction but Nintendo’s management refuses to accept that reality.”: The 3DS is not under threat of extinction. It was the top-selling game console of both 2012 and 2013. Pokemon X and Y have sold over 12 million copies, at $40 each. That is $480 million of revenue right there.
“As a result, there is no real reason to buy a Wii U and its price is such that only someone desperate for the Nintendo gaming titles would buy it.”: That’s how every console sells. People bought the Xbox for Halo. People bought the PS3 for Uncharted. Games sell consoles.
“The decline of the 3DS is likely to be much slower but its appeal is gradually being eaten away by casual games on smartphones and tablets.”: You continually make this mistake: Portable gamers are not the same as casual gamers.
“However there is a new generation out there and to be kept alive these brands have to be made available on iOS and Android.”: Nintendo games are built around fast gameplay and tight control schemes. Both of these would be lost by moving to iOS. You’re recommending that Ferrari expand its brand by making an economy car.
“Revenue per unit would be a fraction of what it is today but with an addressable market of over 1bn units there could be tens or hundreds of millions of sales made.”: Even assuming that Nintendo sold 100 million copies of an iOS game (which assumes that 10% of all mobile owners would buy that game), that would only mean $100M in revenue, at a sale price of 99 cents each. By contrast, Nintendo sold 12M copies of its Pokemon X and Y games at $40 each, or $480M in revenue. Even assuming a huge attach rate for mobile games, Nintendo would be making a fraction of what they’re already making in 3DS games.
Even in the previous year when it was struggling, Nintendo made $6.7B in revenue. This is more revenue than every iOS game developer put together. Meanwhile, Nintendo would be damaging their brand, compromising their gameplay, and joining the thousands of developers struggling to make a living selling apps at 99 cents apiece.
“However, as an investor, I prefer much smaller revenues with profit and cash flow as opposed to larger revenues with losses and cash outflow.”: Switching to iOS would remove the innovate control schemes Nintendo is known for, compromise the gameplay, kill hardware revenue, and cause them to give up 30% of their sales to Apple. This is not a recipe for positive revenue.
As an investor, you clearly know nothing about the videogame market, and you are simply parroting the same flawed arguments that somehow publishing an iOS game is the key to success. Even charging 99 cents for an app is poison today, and developers are struggling to make money on games that they have to give away for free. Nintendo is struggling, but going to iOS would be worse.