Nintendo keeps blowing past its own sales goals. But it needs more hit games

Nintendo keeps having one blowout quarter after another. But analysts say it’s going to need new games and hardware to keep that momentum going.

On Monday, the Japanese gaming company reported 229.7 billion yen ($2.2 billion) in operating profit for the quarter ended December, topping analyst expectations. Sales of its Switch console reached a record high of 11.6 million units during the all-important holiday season.

The runaway success of the Switch prompted the company to raise its sales and earnings forecasts for the second time since November. It now expects a 24% jump in profit from what it projected just three months ago, with 560 billion yen ($5.3 billion) estimated for the year ending in March.

The results show that even many months into the pandemic, people are still turning to the Switch in droves. Nintendo previously projected that it would sell 19 million units of the console for the year ending in March. It now expects to sell 26.5 million after several upward revisions to the forecast.

Nintendo has been a huge winner of the pandemic-hit economy as more people continue to snap up its games and devices to help them stay entertained at home. Last year, the company’s profits soared, sometimes at margins higher than 400%.

One major success for the company has been the continued popularity of “Animal Crossing: New Horizons.” The game, which is set on a relaxing virtual island utopia and allows users to fish, catch bugs and play with friends on the beach, runs on the Switch and has become a best-seller.

Nintendo sold 19.4 million copies of the game in the last nine months of 2020, bringing total sales to about 31.2 million units.

But the company has also been dogged by concerns of how long it can keep its hot streak going, particularly as the world starts to look past the pandemic.

Currently, analysts remain cautiously optimistic.

On Monday, Atul Goyal, an equity analyst at Jefferies, recommended that investors “buy, but stay nimble.”

“We expected this beat,” he wrote in a research note reacting to earnings.

But in order to continue its successful performance, the company “will need a strong game pipeline and a hardware refresh,” he added.

The company plans to release several new titles for the Switch this year, including “Super Mario 3D World” and “Bowser’s Fury.”

But “there is no denying the title line-up for [the upcoming fiscal year] seems lacking,” said Takao Suzuki, an analyst at Daiwa Securities in Japan. “And investors are still closely watching the impact on earnings from a potential change in consumer behavior in the wake of the development and distribution of Covid-19 vaccines.”

Nintendo should also work to build its brand “in business areas other than games,” such as mobile apps or theme parks, he told CNN Business.

The company has not teased new hardware, though some analysts suggest that could change later this year.

The Switch was first released in 2017, while the smaller, cheaper Switch Lite model came out in 2019. Since then, other rivals, such as Microsoft and Sony, have debuted new consoles, namely the Xbox Series X and PlayStation 5.

For now, Nintendo “lacks an earnings growth story,” wrote Goyal. “We would have liked to see Nintendo start building a [broader] strategy, but that remains a dream.”