Nook

Nintendo has its best quarter since 2008, but it needs to be more like Disney

Tuesday, February 2, 2021 by Robinhood Snacks | Disclosures
_Nintendo pulling a Disney_

Nintendo pulling a Disney

The Bank of Nook gets paid... Nintendo just dropped its best quarterly earnings in 13 years. The 131-year-old gaming legend brought in an expectation-crushing $2.2B in profit last quarter, and raised its annual forecast for the second time (#MarioFlex). Nintendo shares jumped 7% on the holiday Switch-mania:

  • Nintendo sold a record 11.6M consoles last quarter, even though Switch has been out for nearly five years. Sales jumped 7% from a year earlier.
  • Now it's expecting full-year sales of 26.5M units. But some analysts are saying that's modest, since it has already sold more than 24M Switches.

Sweats. Mask. Switch... In 2020, the Switch wasn't just a gaming console... it was a lifestyle product. There were three strong winds at Nintendo's back positioning it for a blowout year:

  • Animal Crossing: New Horizons. The long-awaited blockbuster title was an instant hit that boosted both hardware and software sales.
  • Perfect timing: New Horizons dropped in March 2020, right when pandemic lockdowns hit. The virtual island game filled with (very) colorful animals was a perfect escape.
  • Competitive edge: While Sony's PlayStation 5 and Microsoft's Xbox faced production/logistics setbacks that limited sales, Nintendo was able to deliver on demand.
THE TAKEAWAY

Nintendo should pull a Disney... because it might have just hit peak console (Switch saturation is real). That's why Nintendo wants to monetize its characters outside of hardware/software. Disney is a master at this: it makes money off its characters in movies, sequels, and spin-offs — but also through theme parks, cruises, toys, and merch (Elsa-themed everything). Nintendo could benefit from a similarly self-reinforcing ecosystem. Unlike other major console-makers, it designs most of its own games (85% of them). Nintendo could cash in on that precious IP in a number of ways, including the upcoming Super Nintendo World theme park in Japan.