On Monday, the Japanese gaming company reported 229.7 billion yen ($ 2.2 billion) in operating profit for the quarter ended December, exceeding analyst expectations. Sales of its Switch console hit a record high of 11.6 million copies during the all-important holiday season.
The runaway success of the Switch spurred the company to itssales and earnings forecasts for the second time since November. It now expects a profit increase of 24% from what it predicted just three months ago, with an estimate of 560 billion yen ($ 5.3 billion) for the year ending in March.
The results show that even after many months after the pandemic, people are still flocking to the Switch. Nintendo had previously predicted it would sell 19 million units of the console for the year ending March. It now expects to sell 26.5 million after several upward revisions to its forecast.
Nintendo has been a big winner of the pandemic-hit economy as more and more people continue to use games and devices to help keep them entertained at home. Last year, the company’s profits rose, sometimes at margins of more than 400%.
A great success for the company is the continued popularity of “Animal Crossing: New Horizons”. The game, which takes place on a relaxing virtual island utopia and allows users to fish, catch insects and play with friends on the beach, runs on the Switch and has become a bestseller.
Nintendo sold 19.4 million copies of the game in the last nine months of 2020, bringing total sales to approximately 31.2 million units.
But the company is also concerned about how long it can keep its hot streak going, especially as the world begins to look beyond the pandemic.
Currently, analysts remain cautiously optimistic.
On Monday, Atul Goyal, an equity analyst at Jefferies, advised investors to “buy, but stay agile.”
“We expected this beat,” he wrote in a research note on earnings.
But to continue its successful performance, the company “needs a strong game pipeline and a hardware update,” he added.
The company plans to release several new titles for the Switch this year, including “Super Mario 3D World” and “Bowser’s Fury.”
But “there is no denying the title lineup [the upcoming fiscal year] “said Takao Suzuki, an analyst with Daiwa Securities in Japan.” And investors are still closely monitoring the revenue impact of a possible change in consumer behavior in the wake of the development and distribution of Covid-19 vaccines. “
Nintendo should also work to build its brand “in business areas other than games,” such as mobile apps or theme parks, he told CNN Business.
The company hasn’t teased any new hardware, although some analysts suggest that could change later this year.
The Switch was first released in 2017, while the smaller, cheaper Switch Lite model came out in 2019. Since then, other rivals such as Microsoft(MSFT) and Sony(SNE), have released new consoles, namely the Xbox Series X and PlayStation 5.
For now, Nintendo “lacks a story of earnings growth,” Goyal wrote. “We would have liked Nintendo one [broader] strategy, but that remains a dream. “
