With the stock down over 30%, is now an opportunity for investors on the sidelines to buy Nintendo (NTDOY 0.49%)? In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on June 22, Motley Fool contributor Toby Bordelon discusses Nintendo's challenges and quarterly results.
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Toby Bordelon: Here's just a snapshot of that, a snapshot of their earnings report. Plus, going back about 2018 fiscal year in terms of their sales growth and profit growth and that profit ratio there. What we see now, remember, their fiscal year ends in March. The 2020 fiscal year, which ended March in 2020, was pre-pandemic. We had just started with all that stay-at-home buy your video games when their fiscal year ended. You see that big jump in 2021. That was pandemic stuff. Oh, I need a Switch to play except I can't get a switch because they're all sold out. That's still a problem actually. That is what we're seeing. You see that little bit of decrease just last fiscal year. They're projecting a further decrease for next fiscal year. The problem, guys, is Switch sales. Switch sales down 20% year-over-year. They sold 23 million units. They're expecting to sell 21 million units for this coming fiscal year. You see that revenue drop they're projecting there. The issue is part storage. They can't build them fast enough. Everybody wants one, and can't get them. Nintendo said in their earnings call, there's no end in sight for them to the semiconductor storage. That's a problem. Why is it a bigger problem for Nintendo? They depend a lot more on hardware sales than other gaming companies because they're just a closed ecosystem.
They almost put Apple (AAPL 0.69%) to shame in terms of their closed, controlled ecosystem. You want to play Nintendo games, you got to get a Nintendo hardware. That's the way it works and Switch is where it's at right now. If they can't build them, it's a problem for them. They can't grow their user base a lot. They can't sell software. That's what the issue is. Now, I want to be clear here. This does not look like this is a pandemic stock and demand is falling off like with some other companies. The issue is supply. That's the problem. They cut their demand in November. They cut the forecast for Switch sales because demand is not getting any better. That's a good thing. You rather have a supply problem than a demand problem. But it's still an issue for them and this is something I think they do need to work through. Two big issues. Will the supply chain resolve fast enough when they sell more Switches before demand starts to dry up or starts to ease? What does the next generation of hardware look like? If we don't have the parts to build the current generation, what does that mean for iterating in the future? That's things I'm thinking about right now.
