What does a 20-day surge in DIO reveal about Nintendo’s plans for the Switch 2 and the gaming console industry in 2024?

Nintendo had a humble beginning. Founded by Fusajiro Yamauchi in 1889 in Kyoto, Japan, the company started by selling handmade hanafuda playing cards before venturing into the electronic gaming industry in the 1970s.^[1]

Today, Nintendo produces or used to produce gaming consoles like the Game Boy, Super Nintendo Entertainment System, Nintendo DS, Wii, and Nintendo Switch. The company has also created and published many popular game franchises, including Super Mario, The Legend of Zelda, and Pokémon.

After PlayStation (45%), Nintendo’s market share is at 27%

According to Statista, Nintendo’s market share is the second largest at 27% in the gaming console market. PlayStation at 45% has the most market presence. After PlayStation and Nintendo, Xbox at 23% holds the third largest market share. ^[2]

It’s worth noting that these brands—like PlayStation by Sony and Xbox by Microsoft—are part of larger corporations with diverse product lines. 

While Nintendo has a broad portfolio what sets it apart is its unique position as both a hardware manufacturer and game developer. Nintendo both manufactures/designs gaming hardware and develops video game franchises. 

This unique position places Nintendo’s natural competitors in the consumer electronics industry, including companies like Sony (Japan), Panasonic (Japan), L.G. (South Korea), and GoPro (USA).

This analysis will compare Nintendo’s accounts receivables with its competitors categorized based on the above-mentioned filter, beginning with an examination of Cash Conversion Cycle (CCC), which measures how long it takes a company to convert its investment into cash.

Nintendo’s 5-year CCC averages at 50 Days

Nintendo’s CCC in 2020 was 76 days. In 2024, this number was reduced by 28 days to become 48 days. In the same year, Sony’s CCC is at 39 days, Panasonic’s at -9 days, and LG’s at 57 days.

Nintendo’s performance is better than LG’s but is not on par with Panasonic’s, which has a negative CCC, meaning that Panasonic is selling their inventory before they have to pay for it.

Key points about Nintendo’s CCC performance:

• 5-year average CCC: 50 days
• Lowest CCC: 20 days (2023)
• Highest CCC: 76 days (2020)
• 2024 performance:
  • Current CCC: 48 days
  • Increased by 28 days from 2023
  • Main factor: Increased DIO (Days Inventory Outstanding) 

Let’s examine what happened here.

20-day increase in DIO in 2024 from 2023 

Looking into the Days Inventory Outstanding (DIO) numbers, things start getting clearer. DIO measures how long a company holds inventory before selling it.

We’ll break down Nintendo’s DIO, Average Inventory value, and Cost of Goods Sold (COGS) for this period. Here’s a quick breakdown of trends:

1. Nintendo’s DIO, though on a decreasing trend from 2020 onwards, saw a 20-day uptick in 2024 from 2023 levels.
2. Its Average Inventory at -11% CAGR explains why DIO is on a decreasing trend from 2020 onwards.
3. Increased DIO in 2024—a 20 day increase—is because of a 51% increase in Average Inventory value from 2023 levels.

Year	DIO	COGS growth rate	Average Inventory growth rate	COGS (USD Million)	Average Inventories (USD Million)
2024	61	0.18%	51.21%	13.17	2
2023	41	-4.41%	-45.11%	13.15	1
2022	71	-4.96%	-42.88%	13.75	3
2021	118	18.24%	32.22%	14.47	5
2020	105	–	–	12.24	4
CAGR	–	–	–	1.85%	-11.02%

This could mean either of two things: Nintendo is having trouble clearing its inventory, or it’s stocking up inventory for future demand.

We tried to investigate the two scenarios, and here’s what we found!

Stocking up inventory: Potential release of Nintendo Switch 2

Nintendo is planning to release its next-generation console, Switch 2—media reports indicate—their latest console release in 7 years.^[3]

The 51% increase in Average Inventory value directly relates to this launch. Nintendo has increased inventory levels to prepare for the new console’s release.

While inventory increased in 2024, the YoY declining trend in Average Inventory remains unexplained. Declining inventory typically indicates reduced demand, leading companies to adjust production accordingly.

This brings us to DSO (Days Sales Outstanding), another O2C metric which tells us how long it takes a company to collect payment for a sale.

Is Nintendo struggling to sell?

Key Insights on Nintendo’s DSO (Days Sales Outstanding) are as follows:

• 5-Year Range (2020–2024): 23–30 days.
• 2024 Performance: 29 days, a slight 1-day improvement from 2023.
• Highest DSO: 30 days (2021 and 2022).
• Lowest DSO: 23 days (2020).

The rise in DSO over the years correlates with increasing Average Accounts Receivable (AAR), which has grown at a 5-year CAGR of 13%. AAR rose from $5.6 million in 2020 to $9 million in 2024.

Additionally, a 31% YoY decline in Nintendo Switch sales—with just 4.72 million units sold in Q3 2024—further explains the trend.^[4]

But, Nintendo isn’t the only company facing these headwinds.

The Gaming Industry is grappling with broader challenges

Even Sony, the market leader in the gaming console market, reported a 7% YoY decline in annual 2023 operating profit, as reported by CNBC.^[5]

And according to MatthewBall.co, several factors are creating this turbulence:

1. Changing business models: The shift to subscriptions and digital platforms.
2. Evolving user behavior: New gaming habits post-pandemic.
3. Console saturation: Most target audiences already own a console.
4. Competitive and budgetary issues: Higher costs and fierce market competition.

These trends are reshaping the gaming console market, explaining why demand for Nintendo’s products has slowed. The global economic climate is also compounding the issue, with consumers tightening budgets and prioritizing other purchases.^[6]

This brings us to Days Payable Outstanding (DPO). An O2C metric which measures how long a company takes to pay its suppliers.

Nintendo’s DPO at 43 Days in 2024

Given the shared supply chains for components like processing chips, display screens, motherboard, etc., this metric reflects the delicate balance between efficiency and relationship management.

In 2024, Nintendo’s DPO was 43 days, placing it near the industry average of 52 days. Here’s how it companies to the competition:

1. Sony: 78 days
2. Panasonic: 39 days
3. LG: 50 days
4. GoPro: 43 days

While Nintendo’s faster payments do foster strong supplier relations, they limit the company’s ability to hold onto cash longer—a balance that competitors like Sony seem to manage better. 

What’s next for Nintendo?

Nintendo’s current challenges highlight the complexities of the consumer electronics industry vis-à-vis the gaming console market. But the company is far from standing still. The Switch 2 could reignite demand, offering a chance to regain momentum and capitalize on its storied reputation of comebacks.

Here are some key takeaways:

1. Inventory surge: A 51% inventory increase signals confidence in the Switch 2 launch, but a 5-year CAGR decrease of 12% also reflects broader market uncertainty.
2. DSO Concerns: Slower collections tie back to declining Switch sales, mirroring industry-wide struggles.
3. Supplier strategy: A balanced DPO shows Nintendo’s focus on healthy supplier relationships, though it sacrifices some cash flow flexibility.

In toto, with changing consumer trends and demands, Nintendo’s ability to adapt will once again be tested. With its history of reinvention, all eyes are on the next chapter in this legendary company’s story. Will the Switch 2 be the reset Nintendo needs? Only time will tell.