Nintendo announced a 10-for-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 boost the gaming giant’s stock liquidity. This move will take effect in October. No. 1 this year, when each share of common stock is split into 10 shares.
A number of major tech companies, including Apple and Amazon, have announced stock splits over the past few years. They don’t fundamentally change the company in any way, but they make one stock cheaper which could make them more attractive to retail investors.
A stock split is usually positive in relation to a company’s stock price. Nintendo shares are up 5% year-to-date despite other big tech companies losing billions of dollars in value this year amid sharp sell-offs of risky assets.
The Kyoto-based company also announced plans to buy back 56.36 billion yen ($432.9 million) of stock. The deal will take place on Wednesday.
Supply chain pressures hit Switch sales
Nintendo’s surprise stock split announcement came as it announced earnings for the fiscal year ending March 3. 31. Total revenue was 1.69 trillion yen, down 3.6% year on year. Net profit fell 0.6% to 477.6 billion yen.
Part of that weakness is due to lower Switch sales, despite the company launching an OLED (Organic Light Emitting Diode) model during the fiscal year. Console sales totaled 23.06 million units last fiscal year, down from 28.83 million in the previous 12 months.
Nintendo said Switch sales were “affected by a shortage of semiconductor components and other parts.”
The Japanese giant has forecast sales of 21 million units of the Switch in the current fiscal year ending March 2023. This represents a 9% year-over-year decline.
Nintendo has warned that if Covid-19 restrictions interfere with production or transportation, they could affect the supply of products. The company also said product production may continue to be affected by the difficulty of purchasing parts such as semiconductors.
Game sales remain strong
Despite the decline in Switch sales, console gamers continued to buy Nintendo games. Software sales increased 1.8% over the past fiscal year, driven by demand for popular games including “Pokemon Legends: Arceus” and “Mario Kart 8 Deluxe.”
Nintendo said it now has 100 million users who play annually. The Japanese giant has a strong set of recognized characters and games that it has been able to capitalize on throughout its history. Meanwhile, Sony and Microsoft tried to build so-called first-party games by acquiring game production companies or creating their own studios.
Nintendo said sales of its Switch game console slumped in the fiscal year ending March 3. 31 due to supply chain constraints including semiconductor shortages. The Japanese gaming giant is expecting another drop in Switch sales in the currency’s fiscal year.
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 expects to convert 210 million units of software in the year through the end of March 2023, down 10.7% year over year.
However, one analyst thinks Nintendo’s guidance is too conservative. Serkan Toto, CEO of Japan-based consultancy Kantan Games, said the drop in software revenue was making his “mind boggling”.
There are only a few weeks left on the budget [year]Nintendo’s first-party game pipeline already includes eight titles. They just launched Switch Sports, Splatoon 3 is coming in September and a new open world Pokémon game will follow. Tutu told CNBC that the base for hardware installations will rise as well.
“Why on earth would they expect a decline in terms of programs? It doesn’t make sense.”