Nintendo to buy back 10m shares after Christmas sales flop

Nintendo will spend as much as 125 billion yen (€880 million) buying back shares after Christmas shoppers shunned its Wii U console and games featuring Mario and Zelda.

The world's largest maker of video-game machines will buy back as many as 10 million shares, or about 7.8 per cent of outstanding shares, the Kyoto, Japan-based company said in a statement today.

Nintendo had about $8.6 billion of cash and equivalents and zero debt at the end of September.

Nintendo shocked the market this month when it forecast a surprise annual loss, cut Wii U sales projections and said it’s considering a new business model.

President Satoru Iwata, who's taking a 50 per cent pay cut, is under pressure to find a new hit product as casual players move to smartphones and tablet computers, and hardcore gamers flock to faster consoles from Sony and Microsoft.

"The buyback reflects the fact there is no estimate for recovering its profitability," said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan in Tokyo. "The share buyback means the company is trying to reward shareholders."

Share purchase

The Nintendo buyback follows the September death of Hiroshi Yamauchi, who ran the company for 53 years and had a stake of about 11 percent. The company expects his heirs will have to pay inheritance taxes and may have to sell shares.

“That won’t merit shareholders, that’s why we decided on the buyback,” Iwata said today. “But that’s not all the reason. We’ve been rewarding our shareholders mainly through high dividends, but we cannot generate as much profit as we used to make.”

Net income plunged 77 per cent in the third quarter to 9.6 billion yen, according to figures derived from nine-month totals announced by the company today.

Operating profit fell 6.9 per cent to 21.7 billion yen. The company booked a foreign-exchange gain of 48.1 billion yen in the three months ended December 31st.

Nintendo sold 2.4 million Wii U units in the nine months, the company said.

Sony this month said it sold 4.2 million units of its PlayStation 4 since it went on sale November 15th, and Microsoft shipped more than 3 million Xbox One machines.

Salary Cut

Mr Iwata will cut his pay from February to June, and other company directors will take pay cuts of as much as 30 per cent. The president has said he won’t step down after 12 years running the company, and he has no plans to change managers in the near term.

“I’m concentrating my mind on how to rebuild Nintendo rather than how I would take responsibility when things don’t work out in the future,” Mr Iwata said today.

The 54-year-old will discuss his strategy for “using smart devices” to jumpstart a turnaround during a press conference in Tokyo tomorrow. He didn’t elaborate.

Nintendo is studying new ways to revive sales after previously ruling out licensing its franchise characters for online games or smartphone applications, Mr Iwata said earlier this month.

“The Wii U isn’t in good shape,” Mr Iwata said today. “That‘s the presumption we have as we consider reform.”

German shares

Fourth-quarter sales will fall significantly following the end of the holiday shopping season, the company said. In German trading, Nintendo rose 1.3 per cent to the equivalent of 12,847 yen in 9.06am in Frankfurt.

The company’s stock rose 1.3 per cent to 12,880 yen in Tokyo before the announcement, paring this year‘s decline to 8.1 per cent.

Japan's Topix stock index has fallen 3.5 per cent in 2014. When Mr Iwata was appointed in 2002, he became the company's first president from outside the founding Yamauchi family since it started selling cards in the late 19th century.

Mr Iwata subsequently tripled revenue by introducing such hits as the Game Boy Advance SP, the Wii and the Nintendo DS handheld player.

Yet the casual gamers who made Nintendo the leader of a $93 billion industry have abandoned the Wii U for cheap downloads they can play on a Samsung Electronics Galaxy smartphone or an Apple iPad.

The Wii U also lost its appeal to many dedicated gamers, who prefer the PS4 or Xbox One.

Revised forecast

Since reaching an all-time high of 72,100 yen in November 2007, the company has lost more than 80 per cent of its value.

Nintendo on January 17th lowered its annual sales forecast to 2.8 million Wii U units from 9 million and halved its projection for Wii U game sales to 19 million units.

The company cut its forecast for the 3DS handheld player by 25 per cent to 13.5 million units.

Bloomberg