HomeMost PopularPositive Momentum Evident in Nintendo's Recent Earnings

Positive Momentum Evident in Nintendo’s Recent Earnings

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An Encouraging Report

Nintendo (OTCPK:NTDOY) recently released its H1 earnings, and the results, though not groundbreaking, were definitely on the positive side. The company’s continued shift in strategy is now becoming more concrete than just a plan, and market sentiments are gradually reflecting this awakening, especially considering Nintendo’s substantial growth in Japan. The company’s resilience to the yen’s decline has also propped up its performance. While year-to-date returns may not directly reflect Nintendo’s worth, the solid foundation laid by management’s strategic shift suggests a promising future.

Nintendo Switch console

The Numbers Paint a Clear Picture

Examining the Revenue

Nintendo’s Q2 sales witnessed a drop of 4.2% year-over-year, a decline that might trigger concerns. However, the company’s overall strategy doesn’t hinge on sales growth but rather on the effective execution of its IP monetization plans. It’s noteworthy that analysts, a year ago, would have hardly anticipated a 21.2% surge in sales for the first six months of 2024, especially as the Nintendo Switch enters its seventh year in the market, an extraordinary feat for any gaming hardware.

Operating profit rose by 27% in the first six months, although it witnessed a notable decline in Q2. This dip can be attributed to the extraordinary performance in Q1, driven by high-margin products like the movie and sales of Zelda. It’s reasonable to expect such volatility in financials until the launch of a new system, possibly a refreshed version of the Switch, and a confirmation of their recurrent revenue model. This volatility, while introducing risks, also underscores the robustness of Nintendo’s IP, evident from the substantial impact of the Mario movie and a single game on the device’s performance in its seventh year.

Digging Deeper into the Business Segments

Nintendo reported growth in all operating segments, albeit with a slowdown in Q2. The depreciation of the yen has also played a favorable role in the company’s sales, mainly due to a significant portion of its costs incurred in yen. This resulted in a 16% increase in constant currency sales year-over-year for the first six months. Particularly remarkable was the largest sales volume achieved since the Nintendo Switch’s launch, an impressive feat for the matured gaming system, demonstrating the enduring strength of Nintendo’s IP and reducing the disruptive risks associated with hardware cycles.

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