Nintendo announces surprise 10-to-1 stock split; expects Switch sales to drop 9%

Nintendo announced a 10-to-1 stock split on Tuesday as the Japanese gaming giant aims to make its shares more attractive to retail investors.

Shareholders have been calling for a stock split for some time to increase the liquidity of the gaming giant’s shares. The move will come into effect on October 1 this year, when each ordinary share will be split into 10 shares.

A number of big tech companies, including Apple and Amazon, have announced stock splits in recent years. They don’t fundamentally change the company, but make a single stock cheaper, which could make them more attractive to retail investors.

Stock splits are generally positive for a company’s stock price. Nintendo shares are up 5% year-to-date, despite losing billions of dollars in value to other big tech companies this year amid a strong sell-off of risky assets.

The Kyoto-based company also announced plans to buy back 56.36 billion Japanese yen ($432.9 million) of shares. The transaction will take place on Wednesday.

Supply chain pressures hit Switch sales

Nintendo’s surprise stock split announcement came as it announced its results for its fiscal year ending March 31. Revenue totaled 1.69 trillion Japanese yen, down 3.6% year-on-year. Net profit fell 0.6% to 477.6 billion yen.

Part of this weakness was due to lower Switch sales, despite the company launching a new OLED (organic light-emitting diode) model during the fiscal year. Sales of the console line totaled 23.06 million units in the prior fiscal year, up from 28.83 million in the previous 12 months.

Nintendo said Switch sales were “affected by shortages of semiconductor components and other parts”.

The Japanese giant is forecasting sales of 21 million Switch units in the current fiscal year ending in March 2023. That’s a 9% year-over-year decline.

Nintendo has warned that if Covid-19 restrictions interfere with production or transportation, it could impact product supply. The company also said product production could continue to be affected by difficulty in sourcing parts such as semiconductors.

Game sales remain strong

Despite a drop in Switch sales, console gamers continued to buy Nintendo’s games. Software sales grew 1.8% over the past fiscal year, driven by demand for popular games such as “Pokemon Legends: Arceus” and “Mario Kart 8 Deluxe.”

Nintendo said it now has 100 million annual users. The Japanese giant has a solid portfolio of recognized characters and games on which it has been able to capitalize throughout its history. Meanwhile, Sony and Microsoft attempted to develop their so-called proprietary games by acquiring game production companies or establishing their own studios.

Nintendo said sales of its Switch game console slumped in the fiscal year ended March 31 due to supply chain constraints, including a shortage of semiconductors. The Japanese gaming giant expects Switch sales to decline further in the fiscal year in currency terms.

Behrouz Mehri | AFP | Getty Images

In January, Microsoft announced plans to buy Activision Blizzard for $68.7 billion, while Sony agreed to acquire video game maker Bungie for $3.6 billion.

Nintendo has a strong pipeline of upcoming games, including “Nintendo Switch Sports,” but said it plans to move 210 million software units in the year to the end of March 2023, or down 10.7% year-on-year.

However, one analyst thinks Nintendo’s advice is too conservative. Serkan Toto, CEO of Kantan Games, a consulting company based in Tokyo, Japan, said the decline in software revenue made it “breathtaking”.

“We are only a few weeks away from the exercise [year], and Nintendo’s first board game pipeline already includes eight titles. They just launched ‘Switch Sports’, ‘Splatoon 3’ is coming in September and will be followed by a new open-world Pokemon game. The hardware install base will also increase,” Toto told CNBC.

“Why the hell are they predicting a reduction in terms of software? It makes no sense.”

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