NTDOY FY Ended March 2020 Annual Report
The Good
With the official financials from Nintendo’s past fiscal year revealed we learned a few things that we will talk about. First this was a pretty great year for Nintendo as the Switch really hit its stride and secondly, due to the current global situation things are looking down this fiscal year for Nintendo and for the fans. Nintendo identified to shareholders how the Covid-19 has impacted the company in almost all areas from logistics including parts procurement, production and shipping. As well as other collateral areas including research and development, consumption habits, and foreign exchange.
Combing through the financials, Nintendo posted improvements in all areas minus a few insignificant categories. The most important categories including sales, posted a nine percent improvement from the previous year and net profit, posting a thirty-three percent increase. The main reason why these two numbers aren’t in sync is because Nintendo has been steadily seeing growth in its digital sales, which was up a staggering seventy-one percent with room to grow.
Brave New Digital World
Digital sales accounted for thirty-four percent of the companies total software sales and this was an increase of over nine percent from the previous year. Breaking down those digital sales we see that the total was two hundred and four billion yen with 70 percent being games that are available physical as well. The remaining thirty percent of digital sales is split between E-Shop only titles, DLC and Nintendo Switch Online Subscriptions. These numbers can grow because Nintendo Switch Online subscriptions can increase, Nintendo can be more timely with DLC for their flagship titles and therefore increase sales. Finally there is also the assumption that moving forward brick and mortar stores will reduce their footprint and with the current state of the world and how people have accelerated their adoption of digital downloads of games they normally get from stores, the digital format might be the preferred method moving forward for many.
Software
To get an idea of just how well things went for Nintendo this year, you need to not look further than Animal Crossing: New Horizons, which in the eleven days that it had at the end of FY20, sold almost 12 million copies. Nintendo also managed to add numerous games to it’s million seller list which now includes 27 titles with 18 of those being first party. In FY20 new games added to that list include Astral Chain with 1.08, Marvel Ultimate Alliance 3 with 1.08, Pokemon Mystery Dungeon with 1.26, Ring Fit with 2.73, Fire Emblem Three houses with 2.87, Link’s Awakening with 4.38, Super Mario Maker 2 with 5.48, Luigis Mansion 3 with 6.33, Pokemon Sword & Shield with 17.3 million and the aforementioned Animal Crossing.
That is an impressive list for Nintendo without a doubt but there are some things of note from that list. Having Pokemon and Animal Crossing sell at such high numbers is astonishing. Almost half of the Switch owners bought the Pokemon and over twenty percent of Switch owner bought Animal Crossing in its first eleven days. Link’s Awakening only selling 4.38 million seems a little underwhelming for a Zelda title, even for a reimagining. Even Breath of the Wild sold more copies last year with 4.64 million, and that is in its third year.
Its also impressive to see Ring Fit sell pretty well for a premium priced entry due to its inclusion of the resistance ring. Nintendo succeeding on these experiments leads them to try more experiments which is always great for gamers. Lastly, it was great see Luigi’s Mansion do so well with 6.33 million and that makes it the third highest selling new release of FY20, which is deserves due to the attention to detail that game received.
Forecasting
It wasn't all good news for Nintendo as there were some glaring problems with their earning call. The first is that due to the current pandemic and the effect it has had on all aspects of their company, mainly logistics means that moving forward they have forecasted a down year compared to the one that ended March 2020. As previously mentioned, the Switch sold over twenty-one million units in FY20, which was a massive increase from FY19. It’s unfortunate for Nintendo as they were really hitting their stride three years into the consoles life cycle. However, Nintendo isn’t reducing the forecast drastically, as they are expecting to sell 19 million units in FY21, which is still an increase from FY19 and even an increase over the original projections for FY20, which was 18 million units.
Looking at software there are two issues, the first being that projections, similar to hardware, are looking down compared to FY20 and more importantly, as of right now we don’t have a lot to look forward to. Software proejctions for FY20 were originally 125 million but after a great third quarter, Nintendo revised those and increased their projections to 140 million. As I already mentioned, Nintendo blew their software projections out of the water, largely thanks to some surprise hits and Animal Crossing being a cultural zeitgeist at the right moment as Nintendo ended up selling over 168 million software units this past year.
Dry Pipeline?
In their earnings report, their projected release titles from April 2020 onwards include the same to be announced games that sat on the pages at the last few earnings reports and that includes Bayonetta 3, Metroid Prime 4 and Breath of the Wild sequel. Combine this with the speculation that Nintendo is postponing their flagship June Direct and this may be a very dry year for Nintendo. I still expect the majority of those rumoured Mario games to release this fall for the anniversary.
As unfortunate as it is that Nintendo doesn’t think it will be able to match those numbers in FY21, they are still at the same level as their heightened revision after third quarter which means they are still planning on selling software. This means that they are going to have to release some new games that we don’t know about yet because I don’t think they are going to be able to sell 19 million units of hardware and 140 millions units of software if they are not enticing new and existing customers with great new experiences.
Nintendo likely has more planned for 2020 than just the speculation of Mario’s. 35th anniversary, even with the current global situation. I think that they plan to compete with Sony and Microsoft for gamers attention this fall but I don’t think they want to directly compete with them. I think Nintendo is waiting until Microsoft and Sony unveil their release dates for the PS5 and the Xbox Series X, which will then allow them to plan release dates for their important titles around those launches.