Nintendo needs a very merry Christmas to hit Switch sales target

Nintendo has a target of 20 million Switch sales by the end of the financial year. With 5.07 million Switches sold between April-September, it will need to have a very good Christmas.

Nintendo’s (NTDOY) latest earnings announcement revealed it had managed to shift 5.07 million Switches for the April to September period.

This would be considered a good result for any video game company, especially one of the rebound after the failure of its previous console, the Wii U.

Since being launched in March 2017, the Nintendo Switch has sold 22.28 million units. At the same point in the lifecycle, a measly 6.68 million Wii Us had been sold. Both, however, lag behind the Wii, the ground-breaking 2006 console that tapped into an underserved family market.

Nintendo Switch Wii U and Will Total Sales
Source: vgsales.wikia.com, 1.11.2017

Will Nintendo meet its Switch sales target?

The Kyoto-based company, however, isn’t making it easy for itself and has set a target of 20 million Switch sales by the end of the financial year in March. It’s an ambitious target and Nintendo knows it.

“From the beginning, we decided on a target that would be challenging to reach, not easy. The holiday battle begins now,” Nintendo President Shuntaro Furukawa after 2018’s second-quarter earnings results came out this week.

To hit this goal the company will need to have impressive holiday sales.

Typically, the festive season is a good time of year for video game publishers. In January’s  earnings report for Q3, which covered the 2017 Christmas period, Nintendo managed to sell 7.3 million Switches on its ways to sales of 15.5 million by the end of March this year.

That’s someway off 20 million and, going into this year’s festive period, sales momentum hasn’t exactly picked up from what it was last year.

Nintendo’s past reliance on first-party titles has historically been a problem. There’s no annual Mario or Zelda games to tempt gamers on a yearly basis – something the likes of Activision achieve with annual entries in its Call of Duty series.

The company is looking to remedy that this year with new entries in the Smash Bros. and Pokémon franchises being released in time for the festive season. Whether that spurs a sudden rush for the console remains to be seen.

Second-quarter profits hit eight-year highs

Nintendo’s share price stood at 57,000 JPY at the beginning of the year. At the time of writing, the share price was at 35,970 JPY, down 17%, having peaked at 58,450 JPY in the spring.

In the first-quarter of the year, the company made a 30.5 billion JPY operating profit, up 88% year-on-year. In its second-quarter announcement, operating profit hit an eight-year high of 30.9 billion JPY, up 30% from last year.

nitendo switch share price March 2017 to November 2 2018
Source: Yahoo Finance, 1.11.2018

Digital sales have also grown and accounted for 11% of revenue for the first quarter of the year. This should increase with September’s launch of multiplayer service Nintendo Online. The service has an annual cost of $20, which is peanuts compared to similar services from Microsoft and Sony.

Nintendo will also be able to use the service to further leverage its back catalogue of classic games.

However, this hasn’t been been enough to inspire investors, who will be now be looking for both strong third-quarter hardware and software sales.

Turning Switch sales into video game sales

An obvious long-term strategy for the company will be  to turn strong Switch sales into continued video game sales.

The share price fell earlier this year as investor confidence wobbled over a less than full games roster. This has always been a problem for Nintendo – a lack of third-party support was partly responsible for the Wii U’s lacklustre sales.

Addressing this will be key for continual growth as the customer base for Switches become more saturated – after all, there are only so many people that will stump up $300 for a console, but those that do will be looking for more than one game to play on it.

With 42 million Switch games sold in April-September this year, compared with 22 million last year, Nintendo looks set on doing this. If it comes anywhere near its hardware goals for the year, investors might have reason to be merry long into the new year.