ADVERTISEMENT

JEFFERIES: Nintendo's explosive Switch sales should continue to be a rainmaker for the company

Nintendo reported an earnings beat on Tuesday thanks to an explosive performance of Switch sales.

  • The company sold 7.23 million Switch units in the third quarter, driving most of the upside for its stock.
  • A Jefferies analyst believes that we will continue to see the company beat expectations and prompt higher forward guidance in the next two to three years.
ADVERTISEMENT

Nintendo's Switch consoles have helped the company handily beat earnings expectations on Tuesday, which is boosting Wall Street optimism that the trend will likely continue in the coming years.

Its stock was up 5.34% on Wednesday morning at 50,530.74 yen per share.

Wall Street continues to be impressed by the sales streak of the Switch consoles. The company has nearly doubled its stock price since it launched the hybrid home-portable device last year.

ADVERTISEMENT

Nintendo announced that it sold 7.23 million Switch consoles in the third quarter, already outdoing lifetime sales of its predecessor, the Wii U, which had been on the market for five years before being discontinued last fall. Since Nintendo launched the Switch in March 2017, the Japanese video game maker has sold nearly 15 million Switch units. The company raised its full-year guidance to 20 million Switch consoles sold in 2018.

The objective doesn't seem too out of reach for the company given Nintendo is already 900,000 units ahead of its 2017 target, and it still has three months left in the fiscal year.

Aside from the Switch, the company also has revenues from its smart devices and IP-related revenues, which have increased 26% year-over-year. Those areas also represent the biggest potential for growth over the next three to five years, according to Jefferies analyst Atul Goyal.

"Given how conservatively Nintendo guides and how street estimates mirror that conservatism, we believe the 'Beat and Raise cycle' will continue for the next 2-3 years," Goyal wrote in a note.

He sees the company as continually beating estimates and prompting Wall Street, as well as the company itself, to raise its guidance in a constant cycle.

ADVERTISEMENT

Goyal also believes a large part of the market may have missed out on the upside because they are looking at the company's guidance, which he views as conservative, rather than the track record of the company.

The analyst said that video game stocks as a whole are part of a "vibrant cycle" that combined with a structural upside due to consumers' digital transition, has helped all the major video game companies gain in the market.

Jefferies has raised its price target to 69,200 yen (or $ its current price of 47,970 yen.

Nintendo's stock was up 11.02% for the year.

FOLLOW BUSINESS INSIDER AFRICA

Unblock notifications in browser settings.
ADVERTISEMENT

Recommended articles

US troop withdrawal from Niger hangs in the balance

US troop withdrawal from Niger hangs in the balance

Detained Binance executives sue Nigerian authorities for human right violation

Detained Binance executives sue Nigerian authorities for human right violation

Nigeria's central bank increases minimum capital base for banks

Nigeria's central bank increases minimum capital base for banks

Sony’s creators convention redefines the creative landscape for content creators

Sony’s creators convention redefines the creative landscape for content creators

Exploring the popularity of progressive jackpot slots in Indonesia

Exploring the popularity of progressive jackpot slots in Indonesia

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

10 African countries with the lowest life expectancy according to the World Bank

10 African countries with the lowest life expectancy according to the World Bank

Kenyan women are more obese than their men - here’s why

Kenyan women are more obese than their men - here’s why

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

ADVERTISEMENT