Nintendo’s market value surges thanks to Switch game sales

Nintendo Co. rose the most since September, adding $3.5 billion in market value, after the company surprised investors with a big jump in quarterly profit, driven by software sales for its new Switch console.

Shares rose as much as 7.5 percent in heavy trading during the morning session, pushing the company’s market value to $48.7 billion. On Wednesday, Nintendo said operating profit for April-June was 16.2 billion yen ($145 million), exceeding analysts’ average projection for 10.6 billion yen. Revenue more than doubled to 154.1 billion yen, beating the prediction for 139 billion yen.

Many analysts upgraded their estimates after the results, with most citing the stronger-than-expected software sales for the new device, which combines home and portable gaming. The outlook now shifts to Nintendo’s ability to increase production to meet demand in time for the holiday season.

“Amid further global product shortages for Switch, users who got hold of a console purchased more software than we had expected,” Goldman Sachs Group Inc. analysts Masaru Sugiyama and Yusuke Nogichi wrote in a report to clients.

More than 5.1 million shares exchanged hands during the morning session in Tokyo, or about 14 percent of all stock trading in Japan. By comparison, Facebook Inc. was the most-traded stock in the U.S. on Wednesday, but accounted for less than 2 percent of national turnover.

Switch demand in the latest quarter got a boost from the launch of several key titles, including Mario Kart 8 Deluxe, Arms and Minecraft. In total, the company sold 8.14 million Switch software titles during the period and kept its forecast for 35 million games this fiscal year.

With users buying 2.9 games per console, “this confirms for us that Switch buyers have a strong appetite for software purchases,” Nomura Holdings Inc. analyst Junko Yamamura wrote in a report to clients.

Nintendo is betting that the Switch will fuel a new era of growth as more people embrace its dual role as a gaming device that can be used at home, or on the go. That’s also raised questions over whether the company is abandoning its two-gadget strategy of selling consoles and handheld gaming devices. While sales have been solid, analysts and investors are looking for signs that Nintendo will boost production or forecasts.

Last month, the company apologized to customers in Japan for shortages and promised to increase production, without providing a timeline or further details. Nintendo sold 1.97 million Switch units during the quarter, compared with analysts’ estimates for 1.8 million to 2 million. The company kept its forecast for 10 million shipments through March, although analysts remain more bullish, projecting 13 million shipments this year, according to the average of estimates compiled by Bloomberg.

Revenue from its smartphone business was 9.1 billion yen, down from 13.6 billion yen in the previous quarter, when it launched the profitable free-to-play title Fire Emblem Heroes. Income attributed primarily to Pokemon Go was 3.3 billion yen, down from 3.5 billion yen in the prior period.

Still, the company has yet to share details on its upcoming mobile title Animal Crossing, which was originally scheduled to release in March. Nintendo President Tatsumi Kimishima has said he will aim for about two to three mobile titles per year.

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Nintendo’s market value surges thanks to Switch game sales