Taking A Closer Look At Nintendo’s Financials

Earlier this morning Nintendo released its financial statements for the period from April 1, 2015 to March 31, 2016. For the most part, the numbers are pretty close to what they had previously forecast. Looking closer at the data it becomes painfully obvious that Nintendo didn’t have a stellar year. Still, it did manage to turn a profit, which it had struggled to do just a few short years ago.

If we take a look at the consolidated statements of income, net sales have reached a 5-year low with 504,459 million yen (about 4.5 billion U.S. dollars given today’s exchange rate, about $4.2 billion if we average out the last 12 months). Compared to the prior year, net sales were down 8.2%. However, Nintendo did a great job of controlling cost of sales. In other words, things such as component costs could have gone down or maybe the profit margins were higher on certain items, like amiibo. Because of this, their gross profit was the highest it’s been over the past 5 years at 220,965 million yen. Likewise, expenses were kept in check and so their operating income was the highest it’s been in the last 5 years.

 

Income Statement

 

So far, so good, right? Well, here’s where things take a slight turn for the bad. Nintendo does a majority of its business in overseas markets, especially the North America. Unlike the prior three years where Nintendo received foreign exchange rate gains, this year they saw a foreign exchange loss, resulting in 18,356 million yen getting wiped away from income. If we look at last year, Nintendo received 34,051 million yen in exchange rate gains, a massive difference, and one that led to overall lower profit performance in this latest reporting year. After all was said and done Nintendo posted a profit of 16,505 million yen versus 41,843 million yen the prior year, or a 60% drop. It’s not as bad as 2012, 2013, or 2014, but it’s not fantastic either.

­Looking deeper into where Nintendo is earning its money, both the handheld market and home console market saw declines year over year. Handheld income fell by 24% and console income fell by 3%, not as drastic thanks in part to the huge success of Splatoon in Japan and it leading to increased console sales. This is evident when we take a look at software sales. The handheld market was down 27%, but console software sales were actually up by 9%. Also of note is that accessories, which include the amiibo interactive figure line, saw an increase of 36%. Even though Miitomo was only on the market for a few days in this reporting cycle, Nintendo is reporting that smart devices and IP related income was 5,734 million yen versus none in the prior year. Looking at the geographical sales breakdown for all products sold, 26.9% came from Japan, 44.8% from The Americas, 25.2% from Europe, and 3.1% from Other. Both Japan and The Americas increased slightly over the prior year whereas Europe and Other decreased.

3DS-XL

For Nintendo’s next fiscal year (April 1, 2016 – March 31, 2017), it is forecasting 5 million 3DS systems to be sold, compared with 6.79 million sold this past year and 8.73 million sold two years ago. It expects 3DS software to see a bump up to 55 million versus 48.5 million last year and 62 million two years ago. This is mostly due to Pokémon Sun and Moon coming out this holiday season. As for Wii U, prospects look especially dire. Despite selling 3.26 million systems last year and 3.38 million two years ago, Nintendo is only expecting to sell 800,000 for this reporting cycle. That’s a massive 75% drop in Wii U systems it expects to sell. This is no doubt due to the absence of any AAA games announced for the system now that Zelda was pushed into 2017. Software sales are forecast to be 15 million versus 27.4 million last year and 24.4 million two years ago. Forecasted numbers for NX hardware and software have not been divulged.

wiiu-system

For the fiscal year ending March 31, 2017, Nintendo is forecasting 500 billion yen in net sales and operating income of 45 billion yen. It also expects to earn 35 billion yen in profit. In other words, Nintendo is anticipating having nearly the same net sales as this past year (504 billion yen), higher operating income (32.8 billion yen last year), and improved profit (16.5 billion yen last year). To achieve this, Nintendo will need to make up for lost sales in its Wii U hardware division (2.75 million less systems anticipated to be sold at about $275 a pop is $742.5 million that will need to be recouped elsewhere). Not to mention its Wii U software is supposed to be almost half what they were last year, and it becomes very apparent that Nintendo will need its mobile efforts to pick up the slack. Miitomo is in the market, but Animal Crossing and Fire Emblem won’t be released until sometime this fall. Nintendo will need to find an enticing way to monetize those games for smart devices in order to recoup the massive hole being left by Wii U and decreased 3DS hardware sales. Of course, if NX does manage to launch in March of 2017, all of the hardware and software sales from that will contribute to earnings, but only for that month. It’s too early to tell what kind of impact it will have on Nintendo’s financials, and Nintendo isn’t sharing that information at the moment.

So, when all is said and done, Nintendo didn’t have an amazing year, but it remained profitable. It anticipates having similar sales with higher profit through next March despite the expectation that its home console market will dry up and die. As a Nintendo fan there are still some great games coming out in 2016, but if you’re solely a Wii U owner it will be a rough ride with the only first party games announced as coming out the rest of this year being Tokyo Mirage Session #FE, Mario & Sonic Olympics, and Paper Mario: Color Splash. 3DS owners will fare a bit better with Dragon Quest 7 & 8, Pokémon Sun & Moon, Kirby: Planet Robobot, Metroid Prime: Federation Force, plus a slew of upcoming third party games. Of course none of these games are scheduled to be playable at this year’s E3 show as Nintendo has decided to only show off Zelda for Wii U, a game that’s not coming out this year and that is also seeing a simultaneous release for its next platform, the NX. It will be an interesting year, that’s for sure.

Craig Majaski

Craig has been covering the video game industry since 1995. His work has been published across a wide spectrum of media sites. He's currently the Editor-In-Chief of Nintendo Times and contributes to Gaming Age.

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