---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 332950
conversation_id: 983305c9-0a99-439c-8b17-fc6b32e88748
citations: 19
created: 2026-05-31 19:15:54Z
---

# Provide a one‑year narrative of Nintendo, outlining how business performance, market conditions, and company actions shaped investor sentiment and valuation.

# Nintendo (7974 JP) — One-Year Narrative (Jun 2025 → May 2026)

The past twelve months for Nintendo are the story of a generational hardware transition — the **launch of Switch 2 on 5 June 2025** — that delivered the strongest console launch in company history, drove a near-doubling of revenue, but left investors wrestling with three offsetting realities by the time the FY26 book closed: a structurally lower-margin business mix, an unusually compressed launch curve, and a sharp cost shock from memory inflation and US tariffs that drives a profit decline in FY27.

---

## 1. Setting the Stage (May–early June 2025): Skepticism Before Launch

Heading into Switch 2's June 5 debut, sell-side sentiment was meaningfully cautious. CLSA captured the consensus discomfort succinctly after Nintendo's FY3/25 results: management's initial FY3/26 OP guide of **¥320bn was "29% short of consensus,"** with Switch 2 hardware/software shipments only **15m / 45m** in the first year, and the original Switch's accelerating decline pressuring profits. CLSA noted guidance "includes US tariff impact of a few tens of billions of yen, accounting for which leaves OP about ¥100bn short of consensus" and maintained a **U-PF (Underperform) rating with ¥7,800 PE-based target** [20].

A proprietary CLSA survey of >1,200 Switch owners across the US, France and Japan flagged a more nuanced concern: respondents valued the iterative upgrades but were lukewarm on Switch 2's *new* features (GameChat, camera, mouse functionality), and pricing was repeatedly cited as a barrier. CLSA's view going into launch: "Switch 2 will struggle to outperform legacy Switch given higher pricing, the absence of a midcycle Covid boost and more handheld competition" [22].

The Buy/Sell tension was therefore clear: a real product catalyst, but one that the **stock was already pricing in** — "the Switch 2 release expends a major share-price catalyst" [21].

---

## 2. The Launch Surprise (June–September 2025): Demand Smashes Expectations

The bears were quickly proven wrong on demand.

- **Day-one+:** Global sell-through of Switch 2 exceeded **3.5 million units in the first four days**, the highest-ever global launch level for any Nintendo dedicated platform [1].
- **+7 weeks:** Sell-through crossed **6 million units globally**, with management noting "demand for Nintendo Switch 2 is exceeding supply in many countries" [2].
- **Q1 FY26 (Apr–Jun, includes only ~one month of Switch 2 sales):** Net sales **¥572.3bn vs ¥246.6bn prior year, +132.1% YoY**; dedicated platform sales **+142.5% to ¥555.5bn** [3].

The launch reset the financial composition of the company in two important ways:

1. **Margin mix inverted.** The hardware ramp pushed the proportion of hardware sales from 40.2% to 78.8% of platform revenue in Q1, dragging the **gross profit ratio from 61.8% to 32.3% (–29.5pts)** [4]. The "razor-and-blade" downside of the cycle was visible immediately.
2. **Software attach was strong.** *Mario Kart World* (bundled and standalone), *Donkey Kong Bananza* (July), then *Kirby Air Riders* (November) and *Pokémon Legends: Z-A — Switch 2 Edition* (October) provided a deeper software runway than the bears modeled.

By the **November 4 H1 print (1H FY26)**, Nintendo took the major guidance step the market had been waiting for: full-year Switch 2 hardware lifted **from 15.0m to 19.0m units (+26.7%)** and software from 45m to 48m [5]. The H1 results also brought the first major capital-return shift — the **dividend forecast was raised from ¥120 (FY25) to ¥181 (+61 yen)** for FY26, with management flagging a forthcoming "change in dividend policy" [6].

---

## 3. Holiday Quarter (Q3 FY26, Oct–Dec 2025): Engine at Full Throttle

The December quarter delivered the cleanest evidence yet that Switch 2 was tracking ahead of legacy Switch's launch trajectory:

- **15 million units of cumulative global sell-through by the 4th week of December 2025 — the fastest-selling dedicated platform Nintendo has ever released** [7].
- **9M software hits:** Mario Kart World **14.03m**, Donkey Kong Bananza **4.25m**, Kirby Air Riders **1.76m**, Pokémon Legends: Z-A Switch 2 Edition packaged **3.89m**; legacy Switch software still printed *Pokémon Legends: Z-A* at 8.41m (incl. downloads) [8].
- **9M financials (Apr–Dec):** overall **sales of ¥1,905.8bn (77.2% outside Japan)**, operating profit ¥300.3bn, and **net profit ¥358.8bn — already +51.3% YoY versus the full prior year's nine-month base** [9].
- Yen weakness and ample foreign-currency assets translated into **forex gains of ¥47.8bn (vs ¥6.2bn) in 9M non-operating income** [9], visibly amplifying earnings.

The company also held full-year guidance unchanged at the Q3 print despite the upgraded run-rate, signaling caution into Q4 around the maturing original Switch and the cost backdrop already building behind the scenes.

---

## 4. The Capital Story (February 2026): Secondary, Buyback, and a Sentiment Pivot

The narrative's most pronounced shareholder-base event came in late February 2026:

- On **Feb 27 (Reuters)**, Nintendo confirmed that long-time strategic holders **MUFG Bank and Bank of Kyoto would sell roughly ¥300bn** of stock via a secondary offering — with Nintendo confirming an accompanying buyback to absorb part of the supply (the StreetAccount tape that day showed the print at **¥8,995, then ¥8,921 / +¥184**).
- For FY26 as a whole, Nintendo executed **¥99.927bn of treasury share purchases** [14] — a step-change versus the ¥2m purchased in FY25.
- A **secondary memory-chip-shortage** headline (Feb 16) named Nintendo among the impacted, planting the seed for the cost narrative that would dominate Q4.

The secondary cleared overhang from cross-holders but also marked a near-term peak in share-price euphoria — by the **May 12 FY26 result, the tape was at ¥7,055**, materially below the February level, as investors began discounting the FY27 cost shock.

---

## 5. FY26 Full Year (Year Ended March 31, 2026): A Year of Records

When the books closed, Nintendo had printed one of its strongest years on record — but the headline beat masked margin compression.

| Metric (consolidated, ¥bn) | FY25 | FY26 | YoY |
|---|---|---|---|
| Net sales | 1,164.9 | **2,313.0** | **+98.6%** |
| Operating profit | 282.5 | **360.1** | +27.5% [11] |
| Op. margin | 24.3% | **15.6%** | –8.7 pts [11] |
| Ordinary profit | 372.3 | **542.1** | +45.6% [12] |
| Net profit | 278.8 | **424.0** | +52.1% [12] |
| Net margin | 23.9% | 18.3% | –5.6 pts [12] |
| Advertising spend | 86.5 | 144.6 | +67.1% [11] |
| Annual DPS (¥) | 120 | **219** | +99 |
| Payout ratio | 50.1% | 60.1% | +10 pts [13] |

Unit data (FY26):
- Switch 2 hardware **19.86m units; software 48.71m units** [10].
- Original Switch hardware 3.80m units (10th year); legacy software 136.91m bundled-inclusive (Pokémon Legends: Z-A at 8.85m including SW2 Edition downloads).

The mix shift — hardware-heavy first year, large outside-Japan exposure (USD/yen averaged 159.31 vs 149.48 prior; EUR/yen 183.28 vs 161.76 [12]) — meant the gross-margin profile of the business was structurally lower than the back-half-of-cycle Switch model investors had grown attached to.

**Capital allocation pivoted alongside results.** Nintendo formally revised its dividend policy, stating "the Company has revised its dividend policy effective from the year-end dividend for the current fiscal year" [15], with future annual dividends established at the higher of 40% of OP-based DPS or a **60% consolidated payout ratio** — a structural uplift from prior practice. The ¥99.9bn buyback completed the message: in the high-cash, high-FCF launch year, Nintendo committed to return more of it [14].

---

## 6. The Other Shoe (May 8, 2026 FY27 Guide): Why the Stock Sold Off

The May 12 print of ¥7,055 (down materially from February's ¥8,995) was a direct read on the **FY27 guidance** released alongside FY26 results:

| FY27 Guide (¥bn) | Value | YoY |
|---|---|---|
| Net sales | **2,050.0** | **–11.4%** [16] |
| Operating profit | 370.0 | +2.7% |
| Ordinary profit | 430.0 | –20.7% |
| Net profit | **310.0** | **–26.9%** |
| Annual DPS (¥) | 162 | –57 |
| Switch 2 hardware | 16.50m | –16.9% |
| Switch 2 software | 60.00m | +23.2% |

Three things drove the disappointment:

1. **Cost shock.** Management explicitly factored **"an impact of approximately 100.0 billion yen due to rising component prices, particularly for memory, and tariff measures"** into COGS [17]. The memory-shortage headlines that surfaced in February became hard guidance assumptions by May.
2. **Price hikes — the demand-side response.** To offset the cost wall, Nintendo announced its first material Switch 2 price increases: **Japan ¥49,980 → ¥59,980 (May 25, 2026)**; US **$449.99 → $499.99 (Sep 1, 2026)**; Europe **€469.99 → €499.99 (Sep 1, 2026)** [18]. This is unusual for Nintendo and signals real input-cost pressure.
3. **Concentrated launch year.** The ¥2,050bn FY27 sales guide reflects management's view that "sales were more concentrated in the launch year in comparison to previous hardware systems" — i.e., Switch 2 hardware comp will be down even with a strong software slate (Star Fox, Splatoon Raiders, Yoshi and the Mysterious Book) [19].

FX assumptions also tightened: **150 yen/USD (vs 159.31 average actual) and 175 yen/EUR (vs 183.28)** [19] — a meaningful translation headwind built into the guide.

The ordinary-profit drop (–20.7%) versus near-flat OP highlights how much FY26's bottom line was flattered by ¥44.3bn of forex gains and ¥82.8bn of equity-method income that won't recur on the same scale.

---

## 7. Balance Sheet & Capital Posture (March 2026)

- **Total assets ¥3,805bn (vs ¥3,398bn)**; net assets **¥2,955bn**; capital-adequacy ratio 77.6% [13].
- Cash & deposits balance grew despite the heavier capital return — the financial flexibility for the FY27 cost cycle is intact.
- The combination of **¥99.9bn buyback** [14], **¥219 dividend** [13], and **policy raise to 60% payout** signals a more shareholder-return-oriented Nintendo through the down-leg of the launch cycle.

---

## 8. Putting Sentiment & Valuation Together

The one-year arc of investor sentiment moved through three distinct phases:

| Phase | Window | Sentiment & price action |
|---|---|---|
| **Pre-launch skepticism** | May–early Jun 2025 | CLSA U-PF, ¥7,800 TP [20]; consensus cutting; "catalyst already priced" |
| **Demand surprise → re-rating** | Jun 2025 – Feb 2026 | Record launch [1][2]; H1 guide-up to 19m units [5]; dividend raised to ¥181 [6]; 15m fastest-ever sell-through [7]; stock peaked into the ¥8,900–9,000 Feb secondary |
| **Cost shock & guidance reset** | Feb–May 2026 | Memory shortage headlines (Feb); secondary clears overhang; FY27 sales –11.4% with ¥100bn cost hit [16][17]; price hikes confirmed [18]; stock at ¥7,055 by May 12 print |

The fundamental tension is now between (a) a structurally larger, more capital-returning Nintendo with a generational hit hardware platform, and (b) a transitionally lower-margin year ahead with input-cost and tariff uncertainty. CLSA's pre-launch thesis — that the launch was the catalyst — held in the share-price sense even though the demand thesis was wrong: the stock is roughly where it traded around launch despite a doubling of revenue.

The setup into FY27 is **second-year platform economics**: software mix should rise (60m software vs 48.7m hardware-only-year-one [16]), pricing has been re-cut [18], and shareholder returns are now structurally higher [13][15]. The bear case is execution into a memory-tight, tariff-exposed cost cycle; the bull case is the maturation of a 19.86m-unit installed base [10] into the high-margin software/digital mix that defined late-cycle Switch.

---

**Sources**
[1] Nintendo Co., Ltd., Q1 FY26 Interim Report (filed Aug 2025) — Switch 2 launch June 5; >3.5m sell-through in 4 days
[2] Nintendo Co., Ltd., Q1 FY26 Earnings Slides — 6m sell-through in 7 weeks
[3] Nintendo Co., Ltd., Q1 FY26 Earnings Slides — Consolidated sales table
[4] Nintendo Co., Ltd., Q1 FY26 Earnings Slides — Gross-profit ratio decomposition
[5] Nintendo Co., Ltd., Q2 FY26 Conference Call Deck — Modified Forecast (15m → 19m hardware)
[6] Nintendo Co., Ltd., Q3 FY26 Slides — Dividend forecast revised (¥120 → ¥181)
[7] Nintendo Co., Ltd., Q3 FY26 Slides — Cumulative 15m sell-through, 4th week of December 2025
[8] Nintendo Co., Ltd., Q3 FY26 Report — Software unit detail (Mario Kart World, DK Bananza, Kirby Air Riders)
[9] Nintendo Co., Ltd., Q3 FY26 Report — Consolidated 9M results
[10] Nintendo Co., Ltd., Q4 FY26 Report (May 8, 2026) — FY26 full-year hardware/software units
[11] Nintendo Co., Ltd., Q4 FY26 Slides — SG&A and operating-profit decomposition
[12] Nintendo Co., Ltd., Q4 FY26 Slides — Ordinary/net profit and FX rates
[13] Nintendo Co., Ltd., Q4 FY26 Report — Dividends, balance-sheet, cash-flow tables
[14] Nintendo Co., Ltd., Q4 FY26 Report — Statement of Changes in Equity (treasury-share purchases ¥99.9bn)
[15] Nintendo Co., Ltd., Q4 FY26 Report — Dividend-policy revision text
[16] Nintendo Co., Ltd., Q4 FY26 Slides — FY27 consolidated forecast table
[17] Nintendo Co., Ltd., Q4 FY26 Slides — FY27 assumptions (¥100bn memory + tariff impact)
[18] Nintendo Co., Ltd., Q4 FY26 Slides — Price Revisions for Nintendo Switch 2
[19] Nintendo Co., Ltd., Q4 FY26 Report — FY27 outlook and FX assumptions
[20] Nintendo - U-PF (Bananza peel) — CLSA (8 May 2025) — 607958595LinqAlpha.PDF
[21] Nintendo - U-PF (Switch over) — CLSA (5 Jun 2025) — 607961340LinqAlpha.PDF
[22] Nintendo - U-PF (Switch over) — CLSA (5 Jun 2025) — Proprietary-survey paragraph

*Note: CLSA internal coverage in scope is current through 26 June 2025; the post-launch trajectory (H1 guide-up, ¥99.9bn buyback, secondary, and FY27 cost reset) is sourced from Nintendo's official filings/slides.*

## Citations

- [1] **140120250725520888.pdf** · external
- [2] **250801_2e.pdf** · external
- [3] **250801_2e.pdf** · external
- [4] **250801_2e.pdf** · external
- [5] **Nintendo Co. Ltd - Q2 2026 - Conference Call Deck** · external
- [6] **Nintendo Co., Ltd., Q3 2026** · external
- [7] **Nintendo Co., Ltd., Q3 2026** · external
- [8] **Nintendo Co., Ltd., Q3 2026 Report** · external
- [9] **Nintendo Co., Ltd., Q3 2026 Report** · external
- [10] **Nintendo Co., Ltd., Q4 2026 Report** · external
- [11] **Nintendo Co., Ltd., Q4 2026** · external
- [12] **Nintendo Co., Ltd., Q4 2026** · external
- [13] **Nintendo Co., Ltd., Q4 2026 Report** · external
- [14] **Nintendo Co., Ltd., Q4 2026 Report** · external
- [15] **Nintendo Co., Ltd., Q4 2026 Report** · external
- [16] **Nintendo Co., Ltd., Q4 2026** · external
- [17] **Nintendo Co., Ltd., Q4 2026** · external
- [18] **Nintendo Co., Ltd., Q4 2026** · external
- [19] **Nintendo Co., Ltd., Q4 2026 Report** · external

