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Nintendo shares plunge on first quarter earnings

Nintendo

Stocks in the company tumbled 10%, hitting its lowest intraday level in a year

Nintendo shares plunged on Friday after the gaming giant’s disappointing Q1 earnings, which indicated fading demand for its popular Switch console.

Stocks in the company tumbled 10% at one point, hitting its lowest intraday level in a year. Trading spiked, with Nintendo leading the first section of the Tokyo Stock Exchange in trading value at one time.

The sharp decline comes a day after the company reported a 13% decline in net profit for the April to June period. Operating profit was down 17% to 119 billion yen ($1 billion), which was below the market consensus.

Nintendo suffered a decline in both software and console sales, mainly because the company had seen unprecedented demand a year earlier at the height of the pandemic.

The company’s Animal Crossing: New Horizons video game, released last spring, became an instant global hit during the pandemic Covid lockdowns. It was the main driver of Switch console purchases, with more than 33 million copies sold worldwide.

Citigroup analyst Kota Ezawa notes in his report that Switch hardware sales amounted to 4.45 million units, substantially below our forecast of 5.5 million. The market may well have braced itself recently for a degree of weakness in earnings, but we do not expect the negative impression to be readily dispelled.

Second quarter sales could be worse due to the chip shortage, warned Hideki Yasuda, a senior analyst at Ace Research Institute.

The global electronics and auto industries have been struggling with an unprecedented chip shortage since late last year due to a combination of factors, including unexpectedly strong demand across a range of sectors.

Nintendo has acknowledged logistics delays caused by the pandemic, as well as the effects of the semiconductor shortage on production.

Meanwhile, some analysts believe there is still strong demand for Nintendo games.

Morgan Stanley MUFG Securities analyst Masahiro Ono points out that the first quarter had the toughest year-on-year comparison for Nintendo. Considering that Animal Crossing accounted for 40% of sell-through in the previous first quarter, we believe demand remains at nice and high levels.

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