Nintendo Manipulating Financials? One Billion Reasons This Could Be The Case

There is no doubt that Nintendo is in a transition period. The 3DS is close to the end of its life cycle. The Wii U has all but been forgotten the last six months of 2016. All signs point to a dismal year financially for the once great video game giant. However, there may be reason to believe that some of their decisions this year may be nothing but Nintendo manipulating the financials to set something big up for when they report numbers in 2017.

This is not saying Nintendo is doing anything illegal. It’s just that the gaming giant had a pretty bad year last year. Its earnings were down 60 percent. It missed estimates in the final quarter, and stockholders do not like that. It’s always better to estimate too low than too high.

One might wonder about analysts’ expectations, and it’s true that people are hired and fired based on a very thought-out recommendations they make for companies. However, remember that this is a transition year, and no one is better at keeping secrets than Nintendo.

When Nintendo announced the end of fiscal earnings, they painted low expectations of the coming year. Paper Mario: Color Splash is the only remaining first party game left for the Wii U in 2016. The Legend of Zelda: Breath of the Wild was moved from 2016 to 2017 to give the forthcoming Nintendo NX a AAA launch title. The 3DS has Pokemon Sun and Pokemon Moon coming in November, but that is the only major title for the aging system.

By the end of earnings week, Nintendo stock had fallen at one point below $17 per share. It would beat around this area for a couple of months, until Niantic Labs and The Pokemon Company released Pokemon GO. Nintendo’s relationship with the Pokemon license is a complicated one. Despite the fact that Nintendo owns roughly 32 percent of the company, it is the perceived owner which is obvious considering the stock skyrocketed after GO’s release.

Here is where things get kind of interesting when it comes to Nintendo’s actions as a corporation. On July 22 with shares of the stock up just over 91 percent, Nintendo issues a statement basically saying that the revenue they would receive from Pokemon GO was already figured into their abysmal earnings for the fiscal year. The stock tanked.

“The Company owns 32% of the voting power of The Pokémon Company. The Pokémon Company is the Company’s affiliated company, accounted for by using the equity method. Because of this accounting scheme, the income reflected on the Company’s consolidated business results is limited…

“Taking the current situation into consideration, the Company is not modifying the consolidated financial forecast for now.”

It would be easy to take that statement as the company being judicial in their efforts to keep their shareholders completely informed. However, no one could have predicted what Pokemon GO would do.

According to analysts from App Annie, Pokemon GO is set to make $1 billion before the end of 2016. Numbers usually reserved for some of the largest blockbuster summer movies.

“It’s an entertainment juggernaut. At its current rate, the game has the potential to exceed worldwide box-office numbers for 2016’s highest-grossing film, Captain America: Civil War.”

The revenue to Nintendo could exceed $200 million. The fact that they have no underlying costs should do wonders for a company that already has over $4 billion in cash on hand. It’s hard to believe that anyone at Nintendo saw this coming.

It should be noted that the very next week after debunking Pokemon GO, Nintendo surprised everyone with the announcement of the NES Classic Edition. It’s possible this could have been a ruse to pull that into the spotlight since it seems to be their go-to product for the holidays season.

Image via Nintendo

Regardless, Nintendo manipulating financials to play the long game and come in ahead of expectations is not outside the realm of possibilities. What do you think? Is this a smart business decision, or do you think they knew Pokemon GO was going to be a hit of this magnitude all along?

[Photo by Shizuo Kambayashi/AP Images]