Nintendo Announces Q2 FY2021 Earnings

In the first quarter, Nintendo was among the rest of the gaming industry that reported massive increases across the board due to the quarantine just like TTWO, EA and ATVI. However, would the initial surge in the gaming industry slow down after the first quarter or would the gaming boon continue? Based on the financials from Nintendo’s latest earnings report, as well as the other publicly traded gaming companies, the answer is no.

Once again, in every category, Nintendo reported massive increases in sales, in year on year and in some cases compared to last quarter. What makes Nintendos earnings report a big surprise is just how much momentum there has been for the Switch, especially in a year that has seen and will continue to see nothing major from first party studios that would be considered popular enough to bundle the Switch with outside of Animal Crossing: New Horizons that hit store shelves back in March 20th, which is outside of this current fiscal year. Major releases for the console this fiscal year include Xenoblade Chronicles: Definitive Edition, Clubhouse 51, Paper Mario, and Super Mario 3D All Stars, which is quite paltry considering Animal Crossing: New Horizon was released just at the very end of FY2020.

Looking back on last fiscal year, there was a much steadier flow of first party titles in addition to some great third party titles. Pokemon Sword and Shield, Link’s Awakening, as well as some very pleasant surprises like Ring Fit Adventure and Luigi’s Mansion 3. Not to forget that Animal Crossing technically fell under last fiscal calendar. Third party had some success with MUA3 and Astral Chain both selling over a million copies as well as Fire Emblem: Three Houses moving over 3 million copies to date.

Comparing those two lists, it is easy to see a major difference in not only the quantity of premium titles but also the quality (looking at you Super Mario 3D All Stars). Yet, in spite of a lack of premium titles released so far this fiscal year, Nintendo has seen a major boon in sales, with a large portion of that likely due to the pandemic, but also because they have such an excellent evergreen library.

It’s hard for me to fathom purchasing a Nintendo Switch for the first time this year but if you did, imagine the library of games you would have to choose from that fits any taste. If you like sports you have Mario Kart 8 Deluxe and Mario Tennis Aces. If you like adventure, you have Breath of The Wild and Super Mario Odyssey. If you are nostalgic then you have Links Awakening and Super Mario 3D All Stars. This could go on for a while but you get the idea. There is a great saying that you have to work hard to be lucky and Nintendo is proof of this. They may not have much in the way of major releases this year but their first party library, like usual, is always enough to warrant a purchase and we have seen this come to fruition in the earning report.

Financial Highlights

Everything is up! Net sales are up almost 74 percent, net profit is up over 243 percent, hardware sales are up almost 81 percent, software sales are up almost 72 percent and digital sales are up almost 140 percent. Focusing in on the digital sales being up is a very important victory for Nintendo as they have always been a little behind when it comes to this type of thing. Their online service this generation, albeit much less expensive than the competition still has a lot of flaws. It’s very possible that people are leaning into digital purchasing now since we are in a quarantine and will return to their normal habits once this thing passes. However, humans are habitual, meaning they will likely stick to some of the new methods and ways of purchasing games that they are now familiar with.

All of these increases are compared to the same six month period year on year. There was one figure that was up that is good news and bad news at the same time. Research and Development was up 16.3 percent which is bad news for obvious reasons, mainly more expenses is never positive. The good news is that going out on a limb, the increase could be due to Nintendo developing the speculated Switch Pro that is likely to be released in 2021. The speculation in addition to the increased research and development expenses does make sense.

In just ten days before the reporting of their previous fiscal year, ACNH was able to sell in the neighbourhood of twelve million copies, which set records. During this fiscal year, which started April 1 until September 20th, the title has still been able to continue selling extremely strong with another 14.27 million. This now brings the total sales just above 26 million, making it the second best selling game on the Switch, trailing only Mario Kart 8 Deluxe. In the same period, MK8 Deluxe sold another 4.21 million and that brings the total sales to 28.99 million, which is unheard of for a port.

The assumption has to be made that MK8 deluxe is the best selling remaster or port in the history of video games. The expectation is that MK8 Deluxe will continue to reign supreme as the best selling Switch title due to its evergreen nature and its widespread appeal to every demographic. If family of friends get together, in a safe manner, there is always a possibility of a game of MK8 to be had. It will also likely see a slight boost in popularity, thanks to the recent release of Mario Kart Live: Home Circuit.

Of the few first party games that did release this fiscal year, the results were likely in line with the companies expectations. Paper Mario: The Origami King sold 2.82 million, Clubhouse 51 sold 1.81 million, and Super Mario 3D All Stars sold 5.21. Nothing overly jumps off the page here except the 5.21 million which is impressive because the game was released on September 18 and generated those sales in just under two weeks. It also shows that despite the lack of love and care the compilation was shown, gamers will still buy almost anything from Nintendo from their vault. A strong reason for why even with a lack of new IP, similar to Disney, Nintendo will be fine if they continue to repackage and find new ways to sell us products we already love.

I’d be remiss if I didn’t mention Luigi’s Mansion 3 and how it continues to sell well with an additional 1.51 million units this fiscal year bringing the third entry in the series up to 7.83. There is a decent chance that LM3 will have seen a spooky October bump in sales as well but I thought the game was just such a pleasant surpise that I couldn’t help but discussing it. A few weeks ago we took a look at what Next Level Games might be working on after LM3. 7.83 million sales puts it just outside of the top ten best sellers of the Switch with 10th being New Super Mario Bros U Deluxe at 8.32.

Switch Sales Numbers

Total Switch sales have now eclipsed 68 million with 12.53 of those figures being sold since April 1. The console sales split into about two-thirds for the standard Switch and one-third for the Switch Lite. This is likely in line with what Nintendo had anticipated for the smaller, less functional system. However, considering that they have basically abandoned the 3DS, there is a lot of room for improvement in this department. There used to be strong sales for both the Switch as well as the 3DS and now it is just strong sales for the Switch.

There is a lot of opportunity for Nintendo to capture more attention on a lower priced, strictly portable system such as the Switch Lite. I think the main reason for the somewhat slower acceptance of that system is that it doesn’t overly fill the need of the Switch owner and it is too expensive for the 3DS demographic. There is a world where in 2021, Nintendo does introduce the Switch Pro and is able to reduce the manufacturing cost on the Switch Lite, enabling the company to lower the price and as result recapture the lower end demographic.

The Nintendo Switch, based on projections will surpass the 3DS sales by the end of FY2021 as the handheld currently sits at almost 76 million. Last fiscal year, both hardware and software exceeded revised projections and if that happens this year then its likely that the Switch will surpass the Game Boy Advance as well at 81.51 million units sold. If this comes to pass then the Switch would become the 4th best selling system of their time making gaming systems. At this point it would only be trailing the DS, Game Boy and the Wii. All systems that are in the conversation of best video game system of all time.

Full Year Financial Outlook Increased

One of the major results of this impressive second quarter in a row is the increased forecasting for the back half of the fiscal year. Obviously, Nintendo has just entered into their most profitable quarter of the year which encompasses both Black Friday and the holiday shopping season. The increased forecast wouldn’t be all that surprising in any other year but what makes it bold and impressive is that Nintendo is projecting higher sales in a year that will see brand new consoles from Sony and Microsoft.

Using the earnings report to look ahead at the remaining five months in the fiscal year, things look fairly bleak for first party Nintendo with the exception of Super Mario 3D World in February, which is an amazing game that was under looked on the WiiU as everything else on the awkward system. However, it is just another WiiU port in the long line of many that have already made their way to the Switch and will likely provide a slight boost in hardware sales for people that never played the WiiU. Pokemon Snap, The Breath of The Wild sequel and Metroid Prime 4 are still TBD.

Although even with a lacklustre year with the exception of the Animal Crossing release, Nintendo was once again able to increase their projections for the remainder of fiscal year 2021. Last year was a great year for Nintendo as they sold about 168 million units of software and about 21 million hardware units. Both of these figures beat the expectations despite the projections being increased multiple times during the year. After the first half of the year Nintendo is now forecasting 24 million units of hardware and 170 million units of software. With the majority of their sales coming during this current quarter, Nintendo is likely to beat both of those expectations once again resulting in another strong year from the company.