Review of Nintendo FY3Q19 Earnings Release

Nintendo (7974.JP / NTDOY.US)

[January 31, 2019]

* Review of Nintendo FY3Q2019 Earnings Release *

Bath & Manage

[1.0] Nintendo Switch (NS)

[1.1] NS Hardware

Nintendo managed to ship 9.41M NS in the last quarter (FY3Q19/CY4Q18). The global cumulative shipment of the console comes to 32.27M as of CY4Q18. Nintendo also revises down the forecast of NS from 20M to 17M for the fiscal year ending March 2019.  For reference, the pattern of NS shipment during this FY is as follow: 1.88M / 3.19M / 9.41M for FY 1Q19 / 2Q19 / 3Q19. Nintendo has shipped around 14.5M NS during the first three quarters which makes the new target of 2.5M in FY4Q19 quite reasonable and achievable. The guidance revision can be partially attributed to poor software lineup / schedule in the first two quarters.

The implication from forecast revision and Nintendo’s communication:

  • The revision was inevitable by the end of 2018 since FY4Q19 is unlikely to make up the shortfall from holiday season and the first two quarters in the original guidance.
  • If Nintendo wants to manage the market expectation, the new forecast should be conservative as no one at the company wants to revise down again in March or surprise the market in April.
  • The updated guidance will be the new anchor for next year guidance and expectation.
  • The reiterations of hardware target from Nintendo president Furukawa in the last few interviews might lower his credibility.

[1.1.1] NS JP Shipment Exercise 

I did an exercise on NS JP shipment estimation based on the sell-through numbers and historical patters. I expected the JP shipment was around 1.84M based on cumulative shipment being 7.5% higher than sell-through. It turns out that Nintendo shipped around 2.2M NS which makes the gap between cumulative shipment and sell-through widen to 13%. I can feel that Nintendo tried to push the NS shipment in its home country.

act shipment.png

[1.2] NS Software

As expected, Super Smash Bros. Ultimate, Pokemon Let’s Go Pikachu / Eevee and New Super Mario Bros. U Deluxe did well in the last quarter and Nintendo revised up the software shipment from 100M to 110M.


Thanks to system sellers in holiday season, the overall NS tie-ratio (defined as software shipment during the quarter divided by LTD hardware shipment by the end of the quarter) is back to trend. Given current software schedule, I expect the overall tie-ratio for FY4Q19 will be slightly higher than 1.1x. Lets’ see if Nintendo can schedule Animal Crossing to launch in summer to make the ratio less seasonal even though evergreen titles form the foundation of software sales.


[1.2.1] Digital Sales

Digital sales is performing as well. Digital sales number including Nintendo Switch Online in first three quarters of FY2019 jumped by 38.7% compared to the whole year of FY2018. The proportion of digital sales has increased to 21.8%.


[1.3] Other Metrics

Both inventory and days sales of inventory (DSI) were both reduced to healthy level.


[2.0] Nintendo 3DS

As expected, Nintendo said it will continue to leverage the installed base and rich  library of Nintendo 3DS. That said, the contribution from the handheld console will be less and less significant.

dedicatedplatform[3.0] Smart Device

The performance of Smart Device was not impressive as the company is still experimenting in this space.



【直球緩球】スイッチ目標は維持 任天堂・古川俊太郎社長 – 産経新聞

That said, if they keep their mediocre reporting on smart device performance and communicate their mobile app focus like below, this business segment is not going anywhere in the foreseeable. Targeting by number of new apps per year is another sign that the company still has no direction in app gaming space. Maybe Nintendo has some update in the business briefing next day.

As we endeavor to develop future planned applications, we will also focus on continued service operations for applications that have already been released so that consumers can enjoy playing them for a long time.

[3.1] Mario Kart Tour Postponed to this Summer

In order to improve quality of the application and expand the content offerings after launch, the release date has been moved to summer 2019.

At least it’s a delay rather than a re-development like Metriod Prime 4.

[3.2] Dragalia Lost

If you see the advertisement after two month since launch like below, it’s probably not a good sign.

Still waiting for more details to be disclosed in the business briefing. However, we can get some colors from CyberAgent’s presentation.


Power laws might also apply to mobile gaming so whether the uptick in January probably driven by cac depends on the fundamentals of gameplay and monetization.

[4.0] Overall Impression from this Earnings Release

Delays in Metriod Prime 4 and Mario Kart Tour, downward revision of Nintendo Switch shipment forecast and the conservative financial forecast make me feel Nintendo is enduring a transition period where it wants to bath and manage the expectation.

More color after business briefing.

~ My Relate Posts ~

~ Corporate Event ~

  • February 1, 2019: Business briefing

Nintendo – Note – 20190129

Nintendo (7974.JP / NTDOY.US)

[January 29, 2019]

Note: Interview, Metriod Prime 4 & Exercise

[1.0] The Sankei News Interview

Nintendo president Shuntaro Furukawa had an interview with The Sankei News and it was released on January 25, 2019. Furukawa talked about strong performance during holiday season, pricing of Nintendo Switch, product development of Nintendo’s home console, the 20M Nintendo Switch shipment target, smart device business, and talent acquisition when the overall economy is doing well. We have already known most of stuffs Furukawa talked about so I only comment on those that I think have implications.

[1.1] Nintendo Switch


[1.1.1] Reiteration of 20M Nintendo Switch Shipment Guidance

Since it’s very close to the earnings release, we expect Nintendo will maintain the guidance number however the actual shipment was in the last quarter.

[1.1.2] Haven’t Considered Successor of Nintendo Switch so far

The keyword here is the “successor” (後継機種). Since Nintendo Switch is performing, Nintendo will expect the console has relatively long product life cycle. Therefore, it’s too early for Nintendo to either have clear idea or discuss the idea publicly on next generation home console when Nintendo Switch just starts its third year. That said, I still believe it’s very beneficial for Nintendo to have a product roadmap for the platform. Another point is that the “successor” is different from model revision / upgrade / variation. So the possibility of a different Nintendo Switch model for this year is still can not be ruled out.

[1.1.3] Haven’t Considered Price Cut for Nintendo Switch so far

Since Nintendo Switch is on track or probably meets Nintendo’s expectation, there’s no reason for Nintendo to consider a price cut in the first two years of Nintendo Switch’s product life cycle. However, Nintendo Switch did have bundles which effectively offered the hardware at a discount. We’re not sure whether Nintendo will adopt a direct price cut, do more bundles, or just do both in this holiday season.

Nintendo mentioned before that it’s would not sell Nintendo Switch below cost so how deep the price could be cut depends the cost reduction of the hardware.

[2.0] Restart of Metriod Prime 4 Development

Nintendo released a development update on Metriod Prime 4 on January 25, 2019 announcing that the current development was halted and that Nintendo decides to restart the development from the very beginning under Retro Studio.

The public feedback is generally positive for Nintendo’s transparency.

For restarting the a game development under different developer, I would expect anything capitalized in the original development should be recorded as a loss. So we might see an extraordinary loss on the income statement next quarter (or this quarter depending on the timing they reflect the economic reality of their business decision). The extraordinary loss should have less impact on the cashflow. Previous research and development expenses are unlikely to generate future benefit for the new development. Most of previous previous R&D on the project was wasted but it also depends on how well Nintendo can keep experience from those R&D. Delayed software launch means the contribution from the franchise is pushed back. Since Metriod is not as big as other system sellers, the overall financial impact is limited.

The change of leadership and strong performance of Nintendo Switch create rooms for more decisions like this.

[3.0] Exercise on Japan Shipment Estimation

ns jpshipment

If the Nintendo Switch in Japan follows previous patterns that cumulative shipment is around 7.5% higher than the cumulative sell-through, then Japan shipment of Nintendo Switch in calendar year 4Q 2018 would be around 1.84M. The Japan share of global shipment in the last quarter should drop significantly if the result of last quarter shows the possibility for Nintendo to achieve their guidance.

~ My Related Posts ~

Preview of Nintendo FY3Q19 Earnings Release

Nintendo (7974.JP / NTDOY.US)

[January 19, 2019]

* Preview of Nintendo FY3Q2019 Earnings Release *

[1.0] Nintendo Switch

[1.1] NS Hardware

  • The haunting 20M hardware shipment guidance for the Fiscal Year ending in March 2019 is finally approaching to the end as both management and market will have relatively high confidence whether it can be reached as of third quarter results being released. The shipment target now rolls over to next fiscal year.
    • If Nintendo maintains giving guidance on hardware shipment for next fiscal year, it becomes a little be tricky for them. This fiscal year the hardware traction is distorted by software pipeline/schedule making business shows more seasonality compared to historical pattern. The management was plagued by exacerbated seasonality and the guidance becomes kind of a challenge rather than a low ball which Nintendo is more familiar with. Nintendo probably will be reluctant to provide “aggressive” guidance but considering the signaling effect of guidance, Nintendo is unlikely to give a down or even a flat guidance. Best estimate for next guidance (FY2020) might be slight growth on last guidance(FY2019) and FY2020 guidance is the best estimate of hardware shipment.
    • If Nintendo stops giving guidance on hardware shipment, the best estimate for FY2020 hardware shipment is the actual result of FY2019.
    • Nintendo is likely to show how Nintendo Switch tracks / surpasses the pattern of Wii installed base again in their presentation material.
    • Important line item and metric to observe are inventory level and days sales of inventory. Based on what we have know, both line item and metric should drop significantly but maintain at certain level to support the 20M guidance (this also depends on how many Nintendo Switch sales channel can absorb).


  • According to what we have known about the software lineup, it seems the seasonality will be mitigated this year if the lineup is carefully scheduled and successfully executed.
  • WSJ reported that Nintendo might release a “new version” of Nintendo Switch as soon as this summer. The term “new version” is very interesting because it has implication on product life-cycle, product trajectory and long-term ecosystem. New version might be a revision (Switch 2.0, tech improvement), upgrade (Switch +, tech upgrade), variation (Switch Lite, taking out features)… Timing is another issue, as the Nintendo Switch is only in year 3 of its life-cycle, it’s more likely Nintendo is taking a installed base perspective on this new version to grow the installed base rather than product trajectory / ecosystem perspective on strategic/product roadmap. Very understandable Nintendo wants to make the cycle of Nintendo Switch longer than typical console. The success of Nintendo Switch gives the company some time to think deeper so short-to-intermediate term their focus in public will be on lengthening current cycle.
  • There are factors like software pipeline from 1st-Party, 3rd-Party and Nindie, household penetration (second Nintendo Switch) and mobility / social aspect that help Nintendo Switch keep some “momentum” in Year 3. That said, considering the competition, difference in product and ecosystem, and product life-cycle, Nintendo will keep pushing the hardware for the next few years. Tactics include but not limit to strong and steady software pipeline, better discovery and gamer acquisition for all 3rd Party on the platform, attractive bundle, thoughtful marketing/adverting, new version, and price discount (it’s reported that Nintendo’s policy for Nintendo Switch is not to be sold at loss. So bundle is more likely than price cut but it’s subject to the reduction of production cost). Sometimes two-sided platform with cross-side network effect working is thought of a conceptual flywheel. However, once the platform is designed with a particular business model and competes with other platforms in reality, platform holder will consistently look at both sides. Some might focus on the balance between supply side and demand side. What is dynamics for a platform where its business model is selling hardware to distribute digital content? For this business, installed base expansion is one question and how the keep the installed base engaged (manage the churn/keep retention) is another.

[1.2] NS Software

  • Strong performance of Super Smash Bros. Ultimate, Pokemon Let’s Go Pikachu / Eevee and Super Mario Party as expected.
    • Nintendo might be showing some data about the synergy between Pokemon Let’s Go and Pokemon Go.
    • These three holiday season titles would help boost the Nintendo Switch overall tie-ratio (defined as software shipment in the quarter divided by LTD cumulative hardware shipment at the of quarter) in last quarter.


  • Nintendo might show the sales of Nintendo Switch software is the fastest in its history. Maybe the company will revise software shipment guidance upward.
  • See if there’s update on software pipeline and schedule. The current pipeline looks decent. New Animal Crossing and New Pokemon (Gen 8) are clearly highlights of 2019. They are both considered as system sellers.
  • Unlikely but it would be great if Nintendo talk about the Nintendo eShop status (not just release digital sales related numbers) and how to further improve the discoverability / visibility / curation for developers on the platform.
  • Finally the system is about to fully support Traditional and Simplified Chinese. More color on Mainland China business?

[1.3] NS Online

  • Might further disclose some statistics (not sure whether Nintendo will release adoption data). In addition, Nintendo might mention that Super Smash Bros. Ultimate help fuel the adoption.

[2.0] Smart-Device

  • See what kind of information about Dragalia Lost Nintendo releases.
  • Mario Kart Tour release date might be announced. (Can this title leverage Niantic’s technology?)
  • Fire Emblem Heroes is likely to sustain the stable performance.
  • Super Mario Run and Animal Crossing Pocket Camp turns out to be more like marketing tools for customer awareness / engagement / reactivation.
  • Probably reiterate 2-3 titles each fiscal year and partnership potential.
  • The reporting style might indicate the potential of Smart-Device business.

[3.0] Nintendo 3DS

  • Nintendo 3DS is in late stage of product cycle. As the gaming console is long term business, Nintendo is keep “supporting” it for a while. Contribution from Nintendo 3DS is will be less and less meaningful. While the price, form factors, game library  seem to be good for onboarding younger audience, what really matters is still consumer behavior (in this case it’s probably those who potentially buy 3DS for the audience).
  • Nintendo probably adopts wait-and-see strategy for this product to phase out while release some 1st Party games for show the “support.” Would be surprised if there is successor.
  • Large installed base with rich library: might be suitable to try some monetization methods.

[4.0] Minor Stuffs

[4.1] Nintendo Switch + Tech Program 

  • What’s the result of this program with Scrum Venture? Any plan to keep doing this or collaborate with other partners?

[4.2] Relationship with Niantic

  • Any plan to further leverage the relationship and their technology?

An article at Business Insider on January 16, 2019:

The other facet of Niantic’s business is the Real World Platform, which the company teased in the middle of last year.

Essentially, the Real World Platform will enable software developers to take advantage of the technology Niantic created for its own games. Developers will be able to use Niantic’s augmented reality tech, as well as the company’s secret sauce for multiplayer gaming and for connecting gameplay to real-world locations.

Finally, Hanke says that Nintendo and the Pokémon Company — the Nintendo joint venture that owns the trademark — have been very pleased with both “Pokémon Go” and “Pokémon: Let’s Go,” and are looking for more “synergies” between the game and the core franchise. That’s good news for Niantic, too, Hanke says.

~ My Related Posts ~

~ Corporate Events ~

  • January 31 (Thu), 2019: FY3Q2019 Earnings Release
  • February 1 (Fri), 2019: FY3Q2019 Business Briefing (TBA)


Mercari (4385.JP) – Note on Category Deepening, Product Enhancement & Marketplace Stickiness

Mercari (4385.JP)

[December 25, 2018]

* Note on Category Deepening, Product Enhancement & Marketplace Stickiness *

Following series posts on Mercari (initial analysis, withdrawal from UK) and its related topics (network effect and digital payment service), this notes examines Mercari recent marketplace deepening/expansion/enhancement initiatives and also does an ideation exercise on user generated content (UGC). The UGC might benefit the marketplace in several ways such as creating more stickiness on user base even though switching cost between platforms is low and increasing traffic internally and externally which might alter purchasing frequency on certain categories and create monetization potential (lead generation, advertising, or even create another marketplace) once the content on particular product/subcategory/category has accumulated to certain level.

[Acquisition of Michael Inc. via Share Exchange]

On October 18, 2018, Mercari announced the acquisition of Michael Inc. which owns automobile-related social network service, “CARTUNE.” CARTUNE has built a community and accumulated automobile related UGC. Mercari aims to increase the listing of automobile category (liquidity) by leveraging CARTUNE’s community. With the benefit of hindsight, the timing and mechanism of the deal benefited the Buyer.

The Company is pushing ahead with its efforts to enhance every category on its C2C marketplace, “Mercari”. The Company, among others, has been making efforts to increase the distribution volume of items in the automotive categories, including the launch of services that allow users to list automotive parts for sale in July 2013 and automobile bodies for sale in May 2016.

Michael has plentiful information concerning automobiles and automotive parts posted by users and off-line and online communities composed of users across a wide range of age groups through the operation of its automobile related SNS service, “CARTUNE”.

The Share Exchange enables the Company, together with Michael, to combine the automotive categories of the Company with the user base, communities and operation know-how of “CARTUNE” of Michael and thereby accelerating the enhancement of the automotive categories with an increase in the number of automotive parts listed for sale.

While the move is quite reasonable and the integration on the technical side should not be difficult (though I’m not a technical guy), the monetization method of marketplace might not be compatible with social network. Simply put, the interaction between users  fostered by the social network makes it easier for them to transact outside of the marketplace if the benefit of marketplace does not significantly exceed the transaction costs incurred offline, particularly for high value automobiles and automotive parts.


If potential buyers can check onsite and so can they transact offline.


It seems Mercari has plenty listings under automobile categories but we can expect liquidity and transactions cluster in certain subcategories. As a market participant, I would be curious about the integration and initial post-acquisition results.


[AI vision proof of concept shopping experience for the Vuzix Blade®]

On December 20, Vuzix® Corporation, Mercari, Inc., and Mercari R4D announced the start of a AI vision proof of concept shopping experience for the Vuzix Blade® AR Smart Glasses. (Mercari announcement in Japanese; Vuzix announcement in English)

Below is the prototype demo video.

I don’t see much advantage of wearing glasses to do product search, discovery, or comparison over using the camera on smartphone.

If the stuff got commercialized eventually, my prediction is that it is unlikely to get wide adoption. Mercari will need to spend on customer acquisition and probably subsidize early adopters (price the product below cost or even give away for free). The churn is expected to be so high that the incremental customer lifetime value on power users (heavy users or addictive buyers) cannot cover the upfront customer acquisition costs and the ongoing retention costs (probably in the of form benefits given to users). My use case for this product is customer engagement tool which is free giveaway to power users.

The real asset is AI vision which is able to recognize the item and match with existing listing. Maybe at some point in the future, they will pivot hardware that the software is running on.

[Ideation on UGC]

One of challenges that marketplaces face is that their users can multi-home. In other words, the switching cost between platforms for users is relatively low (while sellers  on the marketplace might find their transaction / review records valuable because it gives them credibility). Unlike technology platform or standard, marketplaces generally do not have lock-in effect on users. This is why marketplaces have to focus on user engagement and mechanism design that makes the platform stickier for users. I think community (social aspect) and UGC are two keys to increasing C2C marketplace stickiness (but still difficult when facing disruptive pricing). As discussed above, there might be conflict between the interaction in community and the monetization method of marketplace. Thus, here I focus on pure UGC where users have to invest their time and efforts to create content, but ignore the social aspect surrounding UGC. The problem of the setup is in reality the ignorance of social aspect might lead to insufficient incentive for content creator to contribute.

While Mercari as a whole has already gained enough liquidity, the density across categories might differ significantly. The UGC experiment should start with specific product that has enough liquidity or users’ interest (via survey).

Below is my illustration of UGC mechanism attached to specific product.



0. Decide a category and build an UGC infrastructure that is easy to create, store, present content for creators and easy to consume for consumers. Open the UCG feature to existing marketplace users.

1. Start with 1 or just a few products which either have liquidity or potential buyers/sellers and figure out what kind of suitable UGC types might interest users.

2. Solve the chicken-and-egg problem from supply side by providing in-house created contents first.

3. Observe the reaction, keep records and see whether the feature is gaining traction

4. Expand the UGC feature to other products / categories and open the feature to public.

There will be various curation/modification/fine-tuning in the process. Once the content has accumulated to certain level, the benefits clearly show up.

For example, the UGC on cast-iron cookware are recipe, product reviews, maintenance tips etc. The content can attract outside traffic which might flow to Mercari C2C marketplace and to other websites (Mercari can capture this by setting up a B2C marketplace or incorporate B2C into existing marketpalce). UGC might increase propensity to purchase and the purchasing frequency on Mercari. Consider monetization after UGC has meaningful traction.

Basically, each category, subcategory or even product can be viewed as a vertical. The category-by-category approach in UGC platform building will help the company  better understand  each category. Probably the company might find better ways to serve some categories. It might be hard for a startup to compete with Mercari on whole C2C marketplace but focusing on particular category is much more feasible. What inevitable is emerging competitors will try to attack on specific vertical and eat away that GMV.

[Side Notes]

When analyzing Mercari as a whole and looking at initiatives it is taking, I cannot help relating it to giant Chinese or US internet companies. Why? Because Mercari is pursuing many opportunities (what they present sounds fancy). This reflects in various subsidiaries and related websites. Coupled with aggressive talent acquisition, I believe the environment within the group must be “vibrant”. While the environment might be chaotic, what it gives Mercari, its shareholders and potential financial/strategic investors is the optionality.

Pursing many challenging opportunities is ambitious but the concept of density / critical mass might be also applicable to human capital / research and development…

~ My Related Posts ~

Mercari (4385.JP) – Initial Analysis

Networks can still be beaten

Entering a market where existing platforms have network effect working

Mercari (4385.JP) – Note on Withdrawal from UK


~ Corporate Event ~

FY2019.6 Q2 Financial Results Announcement (15:00 JST)