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Nintendo reports a 55% profit drop and declining Switch sales. A strategic decision to avoid generative AI in gaming is impacting future growth.
Nintendo Earnings Report
The latest earnings report from Nintendo Co., Ltd shows that its profit fell 55% as its Switch console sales plunged. The company ?posted a decline in sales revenue and profit, disappointing investors. Against an expectation of 289.61 billion yen, the company posted a revenue of 246.6 billion yen ($1.65 billion). The net profit, however, increased, coming at 80.9 billion yen vs. 70.73 billion yen. Net sales were down 46.5% YoY, while net profits declined 55.3%. Nintendo Switch sales were down to 2.1 million units, a 46% fall, while the company intends to sell around 13.5 million units until March 2025. Despite the fall in sales, Switch (gathering 141.32 million lifetime sales) is the third most-sold gaming console, coming before Nintendo DS (154 million) and PlayStation 2 (155 million).
The company says there is no significant change in its financial estimates released this May. Finally, the company’s software sales dropped 41% YoY to 30.64 million. The total number of annual playing users did grow. It stands at 128 million, an increase from 121 million in the same period of 2023.
Nintendo Switch Future
The Switch device is the second most successful product after Nintendo DS. In 2021, Nintendo revamped its Switch device, including an improved and brighter OLED screen, a bigger screen at 7 inches versus the previous 6.2 inches. It also had improved speakers with more than twice the storage and up to 9 hours of battery life. In 2023, due to increased sales of The Legend of Zelda, there was a considerable rise in the company’s revenue, selling 19.5 million units in the first half of 2023. Mario Kart 8 Deluxe, helped generate around $1 billion. Regardless, as mentioned above, sales have plummeted, leaving investors worried about the future.
Around 74% of all Nintendo sales come from outside Japan, with the Americas contributing the most significant chunk, 44.3%. Japan comes in second at 25.8%, and finally, Europe accounts for 21.3% of sales.
Nintendo Says No to Generative AI
Nintendo is probably the most prominent company that has a negative stance regarding the use of generative AI in its games. President Shuntaro Furukawa announced that the company doesn’t intend to use AI in its first-party games anytime soon, making it a stand-alone example amongst its competitors. Microsoft recently said that it plans to integrate AI chatbots into its consoles. PlayStation is working on a PS5 Pro console, including the Spectral Super Resolution, which uses AI to improve image quality. Some appreciate Nintendo’s stance on using AI as gamers worldwide appreciate the designers, developers, and creativity of the artists, and the use of AI can bereave the games’ artistic and narrative features.
Nintendo Stock price prediction
According to Zack Research, Nintendo ranks at point 2 (buy) with a 17.70 percent annualized return. In terms of Industry Rank, it stands among the top 34 percent. Global economic conditions such as geopolitics, trade wars, and a general recession might impact Nintendo’s future trajectory of the share price.
Despite the drop in the graph of the gaming industry during the last three years, 2024 sets a new record for companies maintaining an upward trajectory in growth and development. This year has been marked by the restructuring and redefining of various gaming companies, which has led to new possibilities and opportunities.? For instance, Intel opted for job cuts with approximately 15,000 staff as their cost-saving plan. Nickelodeon got rid of its Noggin app and laid off its entire staff. Moreover, in January, Platika laid off around 300-400 employees while already parting ways with 600 employees in December.
The gaming industry will hit $200 billion, and the role of AI is only expected to grow. Statista anticipates that a considerable portion of the US (64%) and UK (70%) population may be classified as gamers. Nintendo can capture this growing market, but the company’s stance on the use of AI will be something for investors and analysts to follow closely to see if it benefits the financials or proves a hindrance to further growth.
