Aquamarine
Member
As we all know, Nintendo is struggling right now in its home console business. Wii U sales are far below corporate expectations.
Recent examples of Nintendo's struggle:
With all of that said, let's get to the reason this topic exists in the first place. The following information comes from multiple investor notes released by Jefferies Group, a global investment bank and institutional securities firm, and a Nintendo investor.
There are six tidbits of information from their investor notes I would like to announce that hasn't previously been widely shared:
1. The preliminary date for Nintendo's Q3 Earnings Release is Wednesday, January 29th, 2014, as seen here:
http://www.nintendo.co.jp/ir/en/schedule/index.html
This is an INCREDIBLY important quarter because a significant earnings miss will likely prompt changes within the company. No time is set yet for the release, but here are the previous times we have created a Q3 thread on GAF:
Q3 2011 - Thursday, 01-27-2011, 02:23 AM EST
Q3 2012 - Thursday, 01-26-2012, 02:18 AM EST
Q3 2013 - Wednesday, 01-30-2013, 02:21 AM EST
And here are the times for the previous Q3 releases:
Q3 2011 - 01/27/11 / 02:00AM EST
Q3 2012 - 01/26/12 / 02:00AM EST
Q3 2013 - 01/30/13 / 02:00AM EST
2. Investors by-and-large are pushing for Nintendo to change direction from their current strategy. Many Japanese companies are turning towards smartphones as an avenue for growth, and investors want Nintendo to pursue smartphones as well.
3. Jefferies Group believes that, prior to Q3 results (at this exact moment), there is a 90-100% chance that Nintendo will suffer a large Earnings Miss (from its announced 100 billion JPY Operating Profit), a 75% chance that the company will change its strategy, and a 25% chance that Iwata will retire / get fired at the end of this FY (March-June 2014). This is subject to change depending on how Q3 performs. They believe there is only a small chance that everything will continue as normal.
4. A well-attended conference call with Nintendo occurred on December 20th. In that call, Nintendo confirmed Iwata's previous statement that Nintendo will take advantage of smartphones, with more details to come later...among other statements. This doesn't necessarily mean that Nintendo will be releasing iOS / Android games in January, though. Iwata has previously mentioned Miiverse on Smartphones, Twitter / Social Media advertising, and other avenues rather than actual games. But, he is definitely getting pushed closer and closer to the subject. The pressure on Nintendo is intense at the moment.
5. Iwata conceded that, contrary to his original plans, he will hold a corporate strategy meeting after the Q3 release to discuss the state of Nintendo and their current strategy. If Q3 results are below expectations, this could very well translate into some sort of company overhaul.
6. There is a large chance that Nintendo will significantly revise their Wii U expectations / Operating Profit expectations when Q3 releases.
I wanted to make this topic because we tend to underestimate the importance of these particular Q3 results. If Nintendo changes its strategy, a whole variety of unknowns could happen. Nintendo could start to invest in smartphone game development. Nintendo might set into motion plans to phase out the Wii U within the next couple of years. Iwata may be fired / forced to retire. These are all possibilities if Nintendo significantly misses their profit expectations.
We're at a point where the traditionally stubborn company has the possibility of a very real change. The Wii U's recent failure has the possibility of shaking up the company more than we realize.
Recent examples of Nintendo's struggle:
- Wii U sold-through 223K to consumers in the USA in its 2nd November. This is incredibly worrying for Nintendo's December overseas performance, because it's very underwhelming compared to expectations (for reference, the failed GameCube sold 424K in its 2nd November, 751K in its 3rd November, and 350K in its 4th November).
- Wii U games (like Super Mario 3D World) are not appearing in the recent UK Top 40 charts. A common joke on GAF is how Knack has been frequently out-ranking Super Mario 3D World.
- Wii U marketshare in Europe (in the first five months of the FY) has been approximately 4.3%. In Q2, Wii U shipped a negative amount of consoles to European retailers (consoles were returned to Nintendo of Europe from disgruntled retailers). That has never happened to a still-living Nintendo console before.
- So far, Wii U has been selling somewhat decently in Japan for the past few weeks (and horribly before that), but overseas (USA + Europe + Other) sales are more important for Nintendo in this scenario. Dramatic overseas underperformance outweighs decent performance in Japan, as shown here:
80.6% (39.5% Americas, 37.1% Europe, 4.0% Other excluding Japan) of total sales were overseas in FY3/2008
87.5% (43.3% Americas, 39.5% Europe, 4.7% Other excluding Japan) of total sales were overseas in FY3/2009
84.1% (44.8% Americas, 33.3% Europe, 6.0% Other excluding Japan) of total sales were overseas in FY3/2010
83.4% (45.5% Americas, 32.5% Europe, 5.4% Other excluding Japan) of total sales were overseas in FY3/2011
77.1% (38.8% Americas, 33.6% Europe, 4.7% Other excluding Japan) of total sales were overseas in FY3/2012
67.1% (37.2% Americas, 26.7% Europe, 3.2% Other excluding Japan) of total sales were overseas in FY3/2013
65.7% (39.2% Americas, 23.6% Europe, 2.9% Other excluding Japan) of total sales were overseas in the first six months of FY3/2014
^ Nintendo made their greatest profits when the amount of overseas sales was >80% and the proportion sold in Europe was >35%.
- In the first six months of the fiscal year, hardware and software shipments have been FAR below Nintendo's expectations:
Nintendo's FY Estimates:
Wii U Hardware: 9.0 million units shipped to retailers in one year (12.45 million total) (April 2013 - March 2014)
Wii U Software: 38.0 million units shipped to retailers in one year (51.42 million total) (April 2013 - March 2014)
Nintendo's FY Reality:
Wii U Hardware: 0.46 million units shipped to retailers in the first six months
Wii U Software: 6.30 million units shipped to retailers in the first six months
Remaining:
Wii U Hardware: 8.54 million units shipped to retailers in the remaining six months (11.99 million total)
Wii U Software: 31.7 million units shipped to retailers in the remaining six months (45.12 million total)
- Analyst consensus for Nintendo's operating profit is far below 100 billion JPY
Net Sales (Nintendo's Prediction): 920.0 billion JPY
Net Sales (Analyst Consensus): 804.35 billion JPY
* Net sales is total revenue from software / hardware / royalties minus discounts / returns / allowances.
Operating Profit (Nintendo's Prediction): 100.0 billion JPY
Operating Profit (Analyst Consensus): 56.14 billion JPY
* Operating profit is how much profit Nintendo's core business makes after all business-related expenses / depreciation
Net Income (Nintendo's Prediction): 55.0 billion JPY
Net Income (Analyst Consensus): 47.10 billion JPY
* Net Income is how much money Nintendo earns / its bottom line
- Operating Profit is Nintendo's most important metric, because it shows the health of their business when you take out major modifiers to Net Income like Foreign Exchange Gains.
Q3 is the most important quarter for Nintendo in terms of Operating Profit. According to analyst projections, the vast majority of Nintendo's Operating Profit for the fiscal year will be made in this quarter.
In the past couple of years, this has also been the case with Nintendo's quarterly reports:
In FY3/2009, 38.4% of Revenue and 44.9% of Operating Profit was made in Q3
In FY3/2010, 44.2% of Revenue and 53.9% of Operating Profit was made in Q3
In FY3/2011, 43.9% of Revenue and 61.1% of Operating Profit was made in Q3
In FY3/2012, 52.6% of Revenue was made in Q3, and Q3 was the only quarter Nintendo made an Operating Profit (they had an overall Operating Loss)
In FY3/2013, 53.8% of Revenue was made in Q3, and Q3 was the only quarter Nintendo made an Operating Profit (they had an overall Operating Loss)
Assuming FY3/2014 follows the same trends, Q3 of this year will be the only quarter Nintendo will make an Operating Profit as well (Q1 and Q2 both had Operating Losses).
With all of that said, let's get to the reason this topic exists in the first place. The following information comes from multiple investor notes released by Jefferies Group, a global investment bank and institutional securities firm, and a Nintendo investor.
There are six tidbits of information from their investor notes I would like to announce that hasn't previously been widely shared:
1. The preliminary date for Nintendo's Q3 Earnings Release is Wednesday, January 29th, 2014, as seen here:
http://www.nintendo.co.jp/ir/en/schedule/index.html
This is an INCREDIBLY important quarter because a significant earnings miss will likely prompt changes within the company. No time is set yet for the release, but here are the previous times we have created a Q3 thread on GAF:
Q3 2011 - Thursday, 01-27-2011, 02:23 AM EST
Q3 2012 - Thursday, 01-26-2012, 02:18 AM EST
Q3 2013 - Wednesday, 01-30-2013, 02:21 AM EST
And here are the times for the previous Q3 releases:
Q3 2011 - 01/27/11 / 02:00AM EST
Q3 2012 - 01/26/12 / 02:00AM EST
Q3 2013 - 01/30/13 / 02:00AM EST
2. Investors by-and-large are pushing for Nintendo to change direction from their current strategy. Many Japanese companies are turning towards smartphones as an avenue for growth, and investors want Nintendo to pursue smartphones as well.
3. Jefferies Group believes that, prior to Q3 results (at this exact moment), there is a 90-100% chance that Nintendo will suffer a large Earnings Miss (from its announced 100 billion JPY Operating Profit), a 75% chance that the company will change its strategy, and a 25% chance that Iwata will retire / get fired at the end of this FY (March-June 2014). This is subject to change depending on how Q3 performs. They believe there is only a small chance that everything will continue as normal.
4. A well-attended conference call with Nintendo occurred on December 20th. In that call, Nintendo confirmed Iwata's previous statement that Nintendo will take advantage of smartphones, with more details to come later...among other statements. This doesn't necessarily mean that Nintendo will be releasing iOS / Android games in January, though. Iwata has previously mentioned Miiverse on Smartphones, Twitter / Social Media advertising, and other avenues rather than actual games. But, he is definitely getting pushed closer and closer to the subject. The pressure on Nintendo is intense at the moment.
5. Iwata conceded that, contrary to his original plans, he will hold a corporate strategy meeting after the Q3 release to discuss the state of Nintendo and their current strategy. If Q3 results are below expectations, this could very well translate into some sort of company overhaul.
6. There is a large chance that Nintendo will significantly revise their Wii U expectations / Operating Profit expectations when Q3 releases.
I wanted to make this topic because we tend to underestimate the importance of these particular Q3 results. If Nintendo changes its strategy, a whole variety of unknowns could happen. Nintendo could start to invest in smartphone game development. Nintendo might set into motion plans to phase out the Wii U within the next couple of years. Iwata may be fired / forced to retire. These are all possibilities if Nintendo significantly misses their profit expectations.
We're at a point where the traditionally stubborn company has the possibility of a very real change. The Wii U's recent failure has the possibility of shaking up the company more than we realize.
