Published , by Asif Khan
Published , by Asif Khan
Nintendo released their earnings results early in the morning here in the United States, and the market seems pretty disappointed. The Big N provided some pretty weak guidance for the next fiscal year. One data point that jumped out at analysts was the Nintendo Switch console unit sales guidance coming in at only 18 million. This is below consensus estimates that were set at 18.5 million units.
Nintendo (NTDOY) shares are down almost 5% on the day in response to this news. It isn't only the Switch sales guidance that is cause for concern. The company is also guiding for a 6.46% year-over-year drop in profit per share from 1615.51 yen in 2019 to 1511.02 yen in 2020. This profit decline comes in spite of the fact that Nintendo believes revenues will continue to grow albeit much slower in 2020.It is important to note that Nintendo's sales guidance assumes a dollar yen conversion rate of 105 yen/dollar even though the currency is currently valued at a more favorable 111.57 yen/dollar.
I reached out to an anonymous hedge fund manager who goes by Piranha Plant Capital on Twitter about Nintendo's weak guidance. "Every metric was guided conservatively as is tradition with Nintendo. Glad they learned after the 20mm misadventure. 18mm was my mail it in, keep it boring, raise it after their holiday quarter number," said our potted plant pal. I tend to agree with the assessment that Nintendo is trying to set expectations low in an underpromise, overdeliver fashion. They are taking a conservative assumption on currency translation for the yen, and they don't want to find themselves in a similar scenario as last fiscal year when they struggled to hit their lofty 20 million Switch unit sales forecast.
I am staying invested in the company, and while the numbers aren't amazing, they aren't terrible either. Some of the biggest news from the report included a statement from Nintendo President Furukawa where he squashed any rumors of a lower-priced Switch device being announced at E3 2019. It is reasonable to assume that such a device would not be factored into the sales guidance they provided today, and could lead to potential upside to sales targets when and if it is announced.
From a technical side, Nintendo still has an active monthly buy signal above $36.35/share and a quarterly buy signal above $39.34/share on the stock chart. Those will be levels to watch as investors digest this disappointing news.
Full Disclosure:
At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:
Long Nintendo via NTDOY shares