Nintendo's software sales help bolster profits as hardware slips

Nintendo reported quarterly earnings that topped estimates, as higher software sales online made up for weaker shipments of the Switch console.

Operating profit was ¥30.5bn in the June quarter, compared with analysts’ average projection for ¥25.6bn.

Revenue was ¥168bn, short of the average projection for ¥186.9bn. The Kyoto-based company maintained its full-year forecasts for profit, hardware and software sales.

The mixed results are the latest twist for Nintendo, which has gone from one of Japan’s hottest stocks to a target for short-sellers - wiping out all its gains in the past year. But with Switch software and hardware shipments holding up, it gives new President Shuntaro Furukawa the chance to focus on the launch of its highly-anticipated online game service in September.

The Switch, a hybrid console that can be used at home or on-the-go, is Nintendo’s biggest bet in years.

“Hardware was a little weaker than expected, but software sales jumped by a lot,” said Hideki Yasuda, an analyst at Ace Research Institute. “The overall impression is pretty good. But the question is if they can keep software sales going, which is critical for profits.”

Nintendo sold 18 million Switch software titles, up from 8.1 million last year, as more people downloaded games from the company’s more profitable online store.

Switch owners on average each bought 0.9 games during the quarter, down from 1.7 last year. It sold 1.9 million Switch hardware units in the June quarter, slightly less than the 2 million seen in the same period a year earlier.

Nintendo sold 1.4 million Labo units during the quarter, meaning just 7% of Switch owners bought the new cardboard products.

Introduced in mid-April, the goal was to promote more physical gameplay while appealing to families and children. Instead, many found the build-it-yourself Labo kits difficult to assemble and its games lacking engaging features to keep kids coming back.

Revenue from smartphone games was ¥9.1bn in the quarter, unchanged from a year earlier. The company has yet to provide details or a release date for its mobile racing game Mario Kart Tour, which was announced in February.