Is Nintendo Stock worth Pass Up?

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Nintendo – the Japanese video game company, recently released an action-packed report. The company behind the hit Switch gaming system witnessed its profits and sales rise in tandem over the last 12 months. Still, the stock declined following the report due to weak hardware and software sales guidance in the current year.

Sustained Switch sales

The considerable interest in Nintendo is its records of launching gaming hardware that became popular a few years ago but then fell out of favor (like the Gamecube or Wii). Four years after launching, it looks like Nintendo bucked the trend with the Switch. Last year, it sold around 233 million software units (games), up from 168 million. Sustained software sales are a significant indicator that Switch buyers are using the system regularly.

Software sales drive most of Nintendo’s profits from a financial perspective. They seem to have notably high margins relative to the Switch hardware. What’s more, digital sales as a percentage of software sales increased almost nine percentage points to 42.9% last year. This was a significant contributor to Nintendo’s operating margin increasing from 26.8% to 36.5%.

Nintendo is guiding sales of around 27 million Switch units and 195 million software units this fiscal year, both a decrease from the 231 million and 29 million sold the previous year. But investors should keep in mind that Nintendo is constantly ultra-conservative with its guidance.

For example, last year in May, Nintendo knew it was experiencing a boost in sales during the pandemic because of the lockdowns.

Non-Switch initiatives

Outside of the Switch, it has a couple of other actions that should soon work for the company. The pair plans to open up four Nintendo-based theme parks worldwide in the next few years in California, Florida, Japan, and Singapore. The location in Japan is already open, but it faced some short-term headwinds because of the COVID-19 pandemic.

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