Japan's Nintendo to buy back shares as sales drop

Japan's Nintendo to buy back shares as sales drop

Nintendo said it would buy back shares after its quarterly net loss missed estimates, underscoring concerns that gaming demand may be peaking as parts of the world emerge from the pandemic and go back to work.

The Kyoto-based company reported operating income of 119.75 billion yen for the June quarter, compared with the average projection of 130.9 billion yen It maintained its forecast for a 22% drop in operating profit to 500 billion yen this fiscal year alongside 25.5 million Switch console sales.

The company said it plans to buy back up to 1.51% of its shares for 100 billion yen. It said it will cancel these shares and that the buyback reflects its cash position from strong sales.

Nintendo, whose Animal Crossing: New Horizons was the breakout title of the Covid era, is grappling with outdated hardware as life returns to certain parts of the globe and people spend less time immersed in games. It saw a mixed picture with Switch hardware sales that rose to 4.45 million units but fell for the more expensive standard edition by 22% over the older ones.

The highly anticipated next Zelda franchise game, a follow up to Breath of the Wild, won't be released until 2022. Nintendo is now counting the debut of a new Switch with a bigger OLED screen on Oct. 8 to reinvigorate the four-year-old platform in time for the crucial holiday season.

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The makers reported record earnings during the Pandemic gaming boom and aims to outdo rivals Sony Group Corp. and Microsoft Corp. which rolled out new consoles last year. Other investors have taken a negative view of the upcoming Nintendo Switch and its higher price tag of $350, pushing Nintendo shares down 15% since it was announced.

The gadget could still outperform rivals as the latest generations of both PlayStation and Xbox remain limited in supply owing to global chip shortages. Long-running franchises such as Capcom Co.'s Monster Hunter could galvanize sales while Pokemon Unite, released in July, could also prop up sales as well.

Microsoft announced last week that revenue growth in its Xbox content and services slowed, signaling headwinds for future demand as vaccine rollouts continue in key markets. Sony reported monthly PlayStation Plus subscribers and passive users for Wednesday, though its chief financial officer Hiroki Totoki said he didn't expect that trend to continue.

Nintendo's revenue and profits for fiscal 2022 ended March likely lack upside to consensus now that the sequel to Zelda Breath of The Wild and rumored Switch Pro won't come until at least fiscal 2023. Although Switch hardware sales should remain robust after a record year in fiscal 2021, aided in part by the release of the new Zelda OLED model, a weak new game slate without Switch hardware sales leaves little room for upside to software sales.