"Switch 2 Sales Slump? Operating Profit Soars 150%... Nintendo's Real Secret Weapon Revealed [Click eStock]"

Shinhan Investment Corp. analyzed that Nintendo delivered solid results despite a decline in 'Switch 2' hardware sales, thanks to an improved software-focused product mix. However, the company noted that for a share price rebound, software sales must lead to margin improvement and an upward revision of earnings estimates.

Nintendo recently announced its earnings for the first quarter of fiscal year 2027 (April to June 2026). Revenue for the first quarter was 517.8 billion yen (approximately 454.97 billion KRW), down 9.5% year-on-year, while operating profit surged 150.5% to 142.5 billion yen. This surpassed the consensus (the average forecast of securities companies) for operating profit, which stood at 74.1 billion yen. Sukoh Kang, an analyst at Shinhan Investment Corp., explained, "A major factor was the deduction of about $300 million (about 47.8 billion yen) in tariffs under the U.S. International Emergency Economic Powers Act (IEEPA), which had previously been reflected in cost of goods sold, following a refund." He added, "Even excluding the impact of the tariff refund, operating profit reached about 94.8 billion yen, which is 28% above consensus. Robust software sales and an improved mix due to declining hardware contribution contributed to profitability improvement."

Digital revenue increased by 90% to 132.7 billion yen, with the share of digital sales rising by 2.2 percentage points to 61.5%. In particular, 'Everybody 1-2-Switch' sold 7.94 million copies in the quarter, boosting Switch 1 software sales to 33.81 million units, up 38.6%. In addition, thanks to the box office success of the 'Super Mario Galaxy Movie,' intellectual property (IP) revenue jumped 107.4% to 34.8 billion yen.

Shinhan Investment Corp. also analyzed that Nintendo is entering a phase of software expansion following the spread of Switch 2 hardware. Kang commented, "With new releases in the second quarter and an expanded lineup in the second half of the year, we expect software-driven mix improvement to continue," and added, "The current share price reflects concerns over rising memory costs, a lack of major titles, and slowed demand due to price increases for Switch 2." He continued, "In Japan, sales have remained robust even after the price hike in May, so it will be important to monitor whether demand holds up in North America and Europe, where prices are set to rise from September 1."

There is an opinion that easing cost burdens is necessary for a share price rebound. Kang stated, "For a share price rebound, software sales have to alleviate cost burdens, leading to improved profitability and upward revisions to earnings estimates."

This content was produced with the assistance of AI translation services.