EUR 850.00 For Business Accounts Only

Morningstar | Switch Shipment Momentum Reaccelerated by Pokemon and Super Smash Bros; Nintendo Shares Undervalued

We are impressed that Nintendo shipped 9.42 million Switch consoles in the December quarter, which is 30% above the previous year’s number, improving from 9% growth in the September quarter. We believe that Nintendo succeeded to reignite the shipment momentum as we had anticipated, driven by the strong first-party titles, such as Super Smash Bros Ultimate, Pokemon Let’s go, Pikachu!/Let’s go, Eevee!, and Super Mario Party. In particular, Super Smash Bros Ultimate recorded 12 million shipments after its launch in December, becoming the largest title of the Super Smash Bros series in less than one month. We will retain our view that the growth of Switch platform will continue to be driven by Nintendo’s attractive software pipeline in 2019, which is not fully embedded to the current share price. We will update our forecasts after meeting with the company next week but do not expect making material change to our fair value estimate of JPY 49,000.

Nintendo revised its Switch console shipment assumption for this fiscal year from 20 million to 17 million, which suggests a 2.51 million shipment, or a 14%, decline from the previous year in the March quarter. However, we view that the number is too conservative, considering the robust sales of Super Smash Bros Ultimate and the launch of New Super Mario Bros U Deluxe in January. Likewise, we assess that Nintendo’s revised software shipment number, expecting a 6% drop in the March quarter, is too pessimistic, as Switch’s platform base is approximately twice as much as the previous year and the number of game titles launched on the platform is improving. Therefore, we expect that Nintendo’s operating income for this fiscal year will exceed its guidance of JPY 225 billion.

Meanwhile, we are concerned that Nintendo is still not able to establish an appropriate business model on its smartphone business. Revenue on smart devices for this quarter was JPY 14.6 billion, lower than our forecast of JPY 17 billion, which suggests that revenue from its new title, Dragalia Lost, slowed down and did not meet our expectation in the December quarter. In addition, Nintendo postponed the launch of Mario Kart Tour to brush up the quality, which was planned to be launched within this fiscal year. Overall, we consider that the outlook of the Switch platform and smartphone business in 2019 will be the main focus at the briefing.