On Monday, the Japanese gaming company reported 229.7 billion yen ($ 2.2 billion) in operating profit for the quarter ended in December, exceeding analysts’ expectations. Its Switch console sales reached a record 11.6 million units during the major holiday season.
The great success of Switch led the company to increase its sales and earnings forecasts for the second time since November. It now expects a 24% jump in profit from what it projected just three months ago, with an estimated 560 billion yen ($ 5.3 billion) for the year ending in March.
The results show that even many months after the start of the pandemic, people are still turning to the Switch en masse. Nintendo previously predicted it would sell 19 million units of the console in the year ending in March. Now it expects to sell 26.5 million, after several upward revisions to the forecast.
Nintendo has been a big winner in the economy hit by the pandemic as more people continue to snap up their games and devices to help them have fun at home. Last year, the company’s profits skyrocketed, sometimes with margins in excess of 400%.
A major success for the company was the continued popularity of “Animal Crossing: New Horizons”. The game, which takes place in a relaxing virtual island utopia and allows users to fish, catch insects and play with friends on the beach, runs on the Switch and has become a best seller.
Nintendo sold 19.4 million copies of the game in the last nine months of 2020, bringing total sales to about 31.2 million units.
But the company has also been haunted by concerns about how long it will be able to keep its tide of success, especially when the world begins to look back at the pandemic’s past.
Currently, analysts remain cautiously optimistic.
On Monday, Atul Goyal, an equity analyst at Jefferies, recommended that investors “buy, but stay agile”.
“We expected this beat,” he wrote in a research note, reacting to profits.
But to continue its successful performance, the company “will need a strong line of games and a hardware upgrade,” he added.
The company plans to release several new titles for the Switch this year, including “Super Mario 3D World” and “Bowser’s Fury”.
But “there is no denying the title’s escalation to [the upcoming fiscal year] seems to be missing, “said Takao Suzuki, an analyst at Daiwa Securities in Japan.” And investors are still watching closely the impact on profits of a possible change in consumer behavior following the development and distribution of Covid-19 vaccines. “
Nintendo must also work to build its brand “in business areas other than games”, such as mobile apps or theme parks, he told CNN Business.
The company has not released new hardware, although some analysts suggest that this could change later this year.
The Switch was first launched in 2017, while the smaller and cheaper model of Switch Lite was launched in 2019. Since then, other rivals, such as Microsoft (MSFT) and Sony (SNE), debuted new consoles, namely the Xbox Series X and PlayStation 5.
For now, Nintendo “lacks a history of earnings growth,” wrote Goyal. “We would like to see Nintendo start building a [broader] strategy, but this remains a dream. “
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