Nintendo: Mario movie means Switch keeps on giving

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In the world of gaming, new is good. New console releases mean more hardware and software sales. Nintendo has the oldest console of its class. The Japanese video game group therefore surprised investors on Thursday when earnings beat records as well as market expectations. 

Operating profits were the highest ever in the first quarter of the financial year at ¥185.4bn ($1.3bn). Sales rose 50 per cent to ¥461.3bn.

The earnings surge followed the massive success of The Super Mario Bros. Movie. This may have gone unnoticed to chin-stroking Oppenheimer audiences and pink-clad Barbie fans. But the film, featuring the evergreen Brooklyn plumber, broke this year’s global box office record. Licensing royalties nearly tripled thanks to the movie 

Many movie-goers have felt a sudden urge to play a Mario game. That meant going out and buying a new Switch console. The platform has been on the market for seven years — decades by gaming industry standards.

Another legend profitably perpetuated its myth. After nearly 40 years since releasing the first Zelda game, Nintendo launched The Legend of Zelda: Tears of the Kingdom. Sales have been strong, especially in the UK.

When an old console model remains popular, it saves on development costs. Nintendo also skips the steep marketing costs that follow each new version launch. Ad spending can alone exceed $15mn in the month before the platform goes on sale.

An ageing console remains a risk to future profits, especially during the peak Christmas shopping period. Shoppers are more likely to buy newer models from Sony and Microsoft.

Nintendo shares are up 15 per cent this year, about half the increase registered by peer Sony. They trade at a premium of just a tenth to Sony on a forward earnings basis, despite the huge popularity of the Mario and Zelda releases this year. 

Nintendo has made the best return possible from its investment in the current Switch model. Consoles and games still account for 92 per cent of group sales. For its shareholders, returns will depend on Nintendo producing a sequel to the Switch as compelling as regular reinventions of its Zelda brand.