Video game consumers' ongoing transition to smartphones and
tablets as the favored hardware platform continues to negatively
. The failure of Wii U coupled with lower expectation for 3DS
dragged down shares by 17.0% ($3.06) to close at $14.90 on Jan
Nintendo recently revised down the full-year 2014 guidance citing
lower Wii U and 3DS sales in the international markets. Despite a
price cut prior to the holiday season, Wii U failed to gain any
traction in the U.S. and Europe. Management slashed unit sales
expectation by 70.0% to 2.8 million from an earlier projection of
Despite being in the market for a much longer period than
next-generation consoles, Wii U's failure indicates growing
preference for smartphones and tablets as well as lack of
compelling gaming titles on the platform.
Since Nov 2012, Nintendo sold 5.3 million units of Wii U,
compared with Sony's 4.4 million PlayStation 4 and Microsoft's
3.1 million Xbox One, which were released in Nov 2013. The fast
growth in both the consoles was also driven by the availability
of premier titles such as
Call of Duty: Ghosts
Nintendo's flagship 3DS sales also faltered by a significant
margin in the U.S. and Europe, partially offset by strong growth
in Japan. Per NPD data, 3DS was the top-selling hardware platform
(in terms of unit) in U.S. in 2013. However, actual sales were
well short of management's expectations.
In Europe, France was the only country where 3DS reported strong
sales. As per Nintendo, sales in other countries lagged
management's expectations by a massive range. Nintendo revised
down 3DS unit sales expectation to 13.5 million from a prior
outlook of 18.0 million.
These revisions are expected to negatively impact full-year 2014
revenues by 330 billion yen. Higher manufacturing costs,
increasing advertising expense (up by 8 billion yen) and research
& development expense (up by 15 billion yen) will negatively
impact operating profit by 35 billion yen.
The dismal performance of Wii U has made its future uncertain. We
believe that the comparatively better performance by 3DS might
compel Nintendo to put Wii U on the backburner.
Nintendo should also rethink its policy regarding developing
gaming titles for other platforms including
iOS as well as Google's Android in the near future. This will not
only expand its market share but also help to revive its
profitability over the long term.
Currently, Nintendo has a Zacks Rank #3 (Hold).
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