Nintendo's Software Sales Help Bolster Profits as Hardware Slips

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

Operating profit was 30.5 billion yen ($274 million) in the June quarter, compared with analysts’ average projection for 25.6 billion yen. Revenue was 168 billion yen, short of the average estimate for 186.9 billion. The company maintained its full-year forecasts for profit, hardware and software sales.

Nintendo sold 18 million Switch software titles, up from 8.1 million last year. It sold 1.9 million hardware units in the June quarter, slightly less than the 2 million seen a year earlier. Switch owners on average each bought 0.9 games during the quarter, down from 1.7 last year.

The company cited “especially good growth“ in digital sales through the Switch’s eShop, which has a higher profit margin than cartridges sold in stores. Digital sales jumped by 68 percent from a year ago to 18.5 billion yen. They accounted for 11 percent of total revenue, double the ratio in December 2016, before the Switch went on sale.

Nintendo sold 1.4 million Labo units during the quarter, meaning just 7 percent 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 9.1 billion yen 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.

Concern over slowing software sales had been a key reason why shares have slumped, dropping as much as 27 percent since May after Nintendo unveiled a lackluster lineup at this year’s E3. The latest results indicate those worries may have been overblown. The company has two big Switch titles for the all-important holiday season: a Pokemon spinoff game in November and the latest installment in fighting series Super Smash Bros. in December.