Nintendo cuts profit
forecast as strong yen overwhelms Pokemon
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[October 26, 2016]
By Makiko Yamazaki
Japan (Reuters) - Japanese videogames maker Nintendo Co cut its annual
profit outlook by a third on Wednesday as a strong yen erodes income
earned overseas and overwhelms an earnings bounce from its surprise hit
smartphone game Pokemon GO.
But the Super Mario creator, which earns over two-thirds of revenue
abroad, also offered an upbeat view of the future in which mobile games
would be a profit driver, albeit secondary to console gaming.
The popularity of Pokemon GO sparked expectations of an earnings
renaissance at Nintendo. Investors saw its embrace of mobile gaming as a
sign of the company decoupling successful games titles such as Super
Mario from a waning consoles business to earn money on other devices.
Nintendo profits from Pokemon GO through investments in Pokemon Co and
Niantic Inc. Nintendo's president, Tatsumi Kimishima said earnings from
affiliates over April-September was 12 billion yen ($115 million),
mostly from Pokemon-related businesses.
"We expect our mobile gaming business to become a pillar of our profit,"
Kimishima said at a news briefing after Nintendo released its latest
earnings report. "But our main focus remains on seeking synergies from
hardware and software," he said, stressing the importance of console
gaming for the company.
For the rest of the business year, Nintendo should benefit directly from
three upcoming mobile titles, including Super Mario Run which will debut
on Apple Inc's iPhones in December.
Yet Nintendo nevertheless lowered its operating profit view to 30
billion yen from a previous projection of 45 billion yen. The new
forecast compared with the 44 billion yen Thomson Reuters Starmine
SmartEstimate drawn from 19 analyst estimates.
It said it now expects the U.S. dollar to average 100 yen and the euro
115 yen, rather than the 110 yen and 125 yen it previously forecast.
Nintendo also posted a second-quarter loss as a stronger yen drowned the
effect of Pokemon GO, whereas analysts had expected a profit.
From hereon, any gains from Pokemon GO will likely shrink, said senior
fund manager Fumio Matsumoto at Dalton Capital (Japan).
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A man walks near Nintendo advertisements at an electronics retail
store in Tokyo May 7, 2015. REUTERS/Toru Hanai
profit contribution from Pokemon GO is commendable, but it's important to
remember that the game was at its peak popularity during the quarter and that is
going to be less so going forward," Matsumoto said.
Beyond this business year, Nintendo is counting on its first game console in
four years to drive earnings growth.
Switch is a hybrid home console and handheld device due for release in March. It
will succeed the Wii U whose sales were a fraction of its popular predecessor
Nintendo released a 3-minute preview video of the Switch last week, but its
shares slid 6 percent the following day as company watchers questioned the lack
of revolutionary features needed to win back gamers.
Kimishima said Switch shipments will reach around two million units by the end
"Hopes about the prospects for the Switch have drawn investors to Nintendo, but
the results today could dampen that enthusiasm," said Mitsunari Akino, executive
officer at Ichiyoshi Asset Management.
($1 = 104.1400 yen)
(Reporting by Makiko Yamazaki; Additional reporting by Hirotoshi Sugiyama and
Yoshiyuki Osada; Editing by Christopher Cushing)
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