Why Is Nintendo Stock Falling?

Nintendo stock (OTCMKTS: NTDOY) is down 12% in a week, while its peer – Take Two Interactive stock – has seen a 7% fall. The recent fall For Nintendo can be attributed to its recently released its Q1 fiscal 2025 results, with sales missing and earnings meeting the street estimates. Nintendo reported sales of $1.65 billion and earnings of $0.5 billion, versus the consensus estimates of $1.94 billion and $0.5 billion, respectively. With the recent results and a fall in global equity markets, NTDOY stock has been under pressure.

Even if we look at a slightly longer term, NTDOY stock has suffered a sharp decline of 85% from levels of $80 in early January 2021 to around $12 now, vs. an increase of about 40% for the S&P 500 over this period. However, the decrease in NTDOY stock has been far from consistent. Returns for the stock were -28% in 2021, -82% in 2022, and 25% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that NTDOY underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the sector including LLYVK, LLYVA, and PARAA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NTDOY face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a recovery? We think that any significant uptick in Nintendo stock will largely depend on the company’s plans for the successor to the Switch console.

Nintendo’s revenue of $246.6 billion yen in Q1 reflected a sharp 46.5% y-o-y fall in sales. It sold only 2.1 million units of the Switch console, down 46% y-o-y. Even the software unit sales declined 41% to 30.6 million. Its operating profit ratio of 22.1% was significantly lower than 40.2% in the prior-year quarter. Looking forward, Nintendo has guided for net sales of 1,350 billion yen in fiscal 2025, reflecting a 19.3% y-o-y decline. It expects its profits to fall 38.9% to 300 billion yen due to higher operating costs.

Nintendo had earlier announced the launch of its new console sometime in the current fiscal. The Switch console is around seven years old and customers have been waiting for a new console, rather than investing in an older version. If Nintendo were to launch the console before the holiday season later this year, it would have provided a significant boost to its sales in the current fiscal. But given that there is no announcement yet, it looks unlikely. Overall, Nintendo’s results weren’t great, and the stock price reflects the ongoing headwinds. We think a rebound in its stock will largely depend on the announcement of a new console release date and new games to go with it.

[1] Returns as of 8/6/2024
[2] Cumulative total returns since the end of 2016

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