Game Purchasing More Selective Now; Lowering Nintendo FVE to JPY 6,000

Based on the lower-than-expected shipments of Switch consoles and games in the December quarter, we estimate that software and hardware shipments over the past three years had been pushed slightly higher than normal due to the pandemic, amid a lack of variety in entertainment. Looking ahead, with the reopening of businesses and the possible economic slowdown, we expect consumer spending on games to be more selective. In addition, PlayStation 5 shipments, which have been sluggish since launch due to supply shortages, are expected to finally increase, which may also affect Switch console sales. As a result, we revise our fair value estimate for Nintendo 7974 to JPY 6,000 from JPY 7,000 due to the lower software shipment assumptions. Nevertheless, we believe that the sharp drop in the share price after the earnings announcement was somewhat an overreaction, as Nintendo still has over 100 million playing users and strong game titles such as Pokemon, which posted record sales in the December quarter, to generate solid sales. We believe that Nintendo’s shares are currently fairly valued.

Switch console shipments in the December quarter were 8.2 million, below our expectation of 9 million, and down 22.9% from the previous year. Although Nintendo launched attractive first-party games, such as Splatoon 3 and Pokemon Scarlet and Violet, this was not enough to boost the console shipments. Given the lower-than-expected shipments, Nintendo revised its console shipment target for fiscal 2022 (ending March 2023) from 19 million to 18 million, which is 21.9% lower than the previous year.