NTDOY - Nintendo

[ZenaidaMacroura]

I had a fairly sizeable nintendo position before the WiiU came out -partly due to the strength of their franchises/and the  bevy of potential catalysts (like this one).  I sold at a slight loss a bit later after I thought it was clear that nintendo would NOT migrate from their native console.

 

That said, I think the brand power/disney model potential is there.  Not to discount what YadaYada said but even today with the internet, new iternations of previous franchises do have a nostalgia effect and it does induce people to take another look... Look at pokemon - a string of games each doing successively better that the previous generation.  And that game is reptitive as hell.  They just need to better utilize their franchises before they go the way of sonic/sega.

[alwaysinvert]

Nintendo has loads of pricing power on their software. They never discount their AAA titles and there's no need for it.

 

And it's not entirely true that people aren't buying old games either. Nintendo has rereleased multiple classics to good sales figures. Right now a fifteen year old Zelda game is topping sales charts - at full price.

 

Now, it's another question if this pricing power is transferable to mobile. No one else has done very well with charging console system prices on mobile. That's why the stock price action is astounding to me. 

[adesigar]

Nintendo has loads of pricing power on their software. They never discount their AAA titles and there's no need for it.

 

And it's not entirely true that people aren't buying old games either. Nintendo has rereleased multiple classics to good sales figures. Right now a fifteen year old Zelda game is topping sales charts - at full price.

 

Now, it's another question if this pricing power is transferable to mobile. No one else has done very well with charging console system prices on mobile. That's why the stock price action is astounding to me.

 

 

Squaresoft is charging $15.99 for some of their 20 year old Final Fantasy titles.

https://itunes.apple.com/us/app/final-fantasy-vi/id719401490?mt=8

https://itunes.apple.com/us/app/final-fantasy-v/id609577016?mt=8

 

I recently bought apps for my daughter for the ipad. Company is called Originator

Endless reader school edition $30 - https://itunes.apple.com/us/app/endless-reader-school-edition/id873347064?mt=8

 

 

 

 

 

 

[mateo999]

Prior to Apple beginning its bond issuance / buyback scheme, I always wondered why it wouldn't try to buy Nintendo.  Apple could have used a bunch of offshore yen, could have exclusive rights to mario, link, etc. and at the time when ATV was even more of a "hobby", get a bigger foothold in the living room.

[adesigar]

Prior to Apple beginning its bond issuance / buyback scheme, I always wondered why it wouldn't try to buy Nintendo.  Apple could have used a bunch of offshore yen, could have exclusive rights to mario, link, etc. and at the time when ATV was even more of a "hobby", get a bigger foothold in the living room.

 

If I remember correctly Microsoft wanted to buy Nintendo when it launched Xbox. They ended up buying Raresoft and Bungie. I don't think Yamauchi would have sold to a non Japanese company. But Yamauchi passed away in 2013 so who knows maybe it could get sold now. I really hope some conglomerate like Apple/Microsoft/Disney doesn't buy Nintendo. Would be a real loss.

[hyten1]

have own this for a while, the price action has out strip my thesis (original thesis was, they had tons of cash ntdoy operating biz was only worth around 1 to 2 bil, the operating unit surely are worth more than that, i believe lucasfilm sold for 4bil )

 

now its market cap is around 27bil usd with approx 10bil in fairly liquid asset (net asset of 11bil usd) is the operating unit worth 17bil? its not as easy at 17bil.

 

hy

[Picasso]

I thought this was a cool pitch on Nintendo.  I agree with others that Apple should buy it to establish even more of a moat around their mobile and TV business.  But maybe there's something we're missing there.

 

https://drive.google.com/file/d/0Bzm9JT6Xfru3Nm9QYWJNUk9YVjg/view

[ccplz]

^ Solid write up. I agree that Nintendo is massively undervalued at this price. Not sure what I'm missing but I think there are multiple drivers to growth/profitability, and their fortress balance sheet gives them all the time in the world.

 

Picasso, are you long NTDOY?

[hardcorevalue]

The risks I see are:

 

Nintendo is not handling the development for mobile smart phone games themselves. Quality may suffer.

The NX system may launch soon. This is a knee jerk response to the terrible WiiU. Any new console launch is a wild card.

Nintendo may be outspent in Virtual Reality by dramatically larger companies. Facebook, Apple, Sony, Microsoft, Google, Samsung.

Street estimates have nintendo doubling profits by 2017. So some mobile growth has already been factored in.

 

If Nintendo came out tomorrow and said it would become exclusively a software developer I would buy the shares instantly. But anybody who understands Nintendo corporate culture knows this is highly unlikely.

 

I'm still sitting back and watching.

[alwaysinvert]

The risks I see are:

 

Nintendo is not handling the development for mobile smart phone games themselves.

 

Yes, they are. They are partnering with DeNA because of their mobile expertise but they are involved in development themselves.

 

 

The NX system may launch soon. This is a knee jerk response to the terrible WiiU. Any new console launch is a wild card. 

 

It's not knee jerk. It's standard procedure when your current console doesn't have any legs to release the next one a year or two early. The planning and development of the next gen console starts as soon as the current one is released no matter what, anyway.

 

Nintendo may be outspent in Virtual Reality by dramatically larger companies. Facebook, Apple, Sony, Microsoft, Google, Samsung.

 

There is no evidence of any significant commercial value in VR as of yet. Nintendo was down that road in the 90s with the Virtual Boy and are understandably gun shy. I haven't seen any signs this is anything more than a fad. But sure fads can be very popular, just look at the Wii. The problem with VR machines is that they are very expensive. Oculus rift will cost $600 and there is probably not that much of a profit at that price point if any. Compare that to the Wii which sold at a good profit per unit right out of the gate at a comparably low price, which is highly unusual for consoles.

 

I just suspect the VR stuff is highly overblown and even if it's not, in my view Nintendo should stay the course on not plowing billions into state of the art technology.

 

If Nintendo came out tomorrow and said it would become exclusively a software developer I would buy the shares instantly. But anybody who understands Nintendo corporate culture knows this is highly unlikely.

 

That's probably correct but not that long ago they swore they would never make mobile games so who knows after the NX.

[alwaysinvert]

A clarification on the Nintendo/DeNA question.

 

I don't know who the main developers are for each title, but there is precedence for Nintendo outsourcing development to second and third party companies with good results. The Zelda ports for 3DS are the latest examples. Camelot has made a number of Mario sports games. Retro Studios has made entries into the Donkey Kong and Metroid series to great success. Sega made the critically acclaimed F-Zero GX. And there are probably more examples which elude me now. All these projects were of course monitored and ultimately quality approved by Nintendo. In some cases the lines between outsourcing and co-development are blurry.

 

They learned their lesson on this front in the early 90s with the Mario movie and the unplayable Zelda games for the Philips CD-i.  This also explains some of their reluctance to milk their franchises with movies, amusement parks etc.

[Picasso]

^ Solid write up. I agree that Nintendo is massively undervalued at this price. Not sure what I'm missing but I think there are multiple drivers to growth/profitability, and their fortress balance sheet gives them all the time in the world.

 

Picasso, are you long NTDOY?

 

Not long yet but I am gravitating towards it.  It's one of those investments that doesn't screen well but has a lot of under appreciated qualities and understated earnings.  Also prices for vintage Nintendo games have been sky rocketing lately so I think there's some real value, just a question of how they pull it out of the register.

 

But I also hate Japanese stocks, they don't care about shareholder value and then I have to hedge out the yen.  The place is a graveyard for long-term value investors.  If I'm going to buy it I need a lot more conviction than I have today and a lower price would help with that.  I recall getting interested when Michael Pachter called for the death of Nintendo since that guy is always wrong.  But that was when Nintendo was under 10k yen and here we are at 15k.  In many ways the mobile market represents an incredible opportunity for Nintendo that didn't exist five years ago.  Either way it will be interesting to see how this develops.

[Chalk bag]

I'll believe it when I see solid products. That nation / company had been behind on mobile for light years and it shows, and Nintendo specifically had been a dinosaur ever since they made the Wii. Handheld is no longer a major market and even console is a shaky proposition w/ the way the world is moving. The CEO who died was a genius for his time in the 80s-90s but a moron when it comes to coporate strategy going forward, while the whole board have no idea how to allocate capital and should all be fired. I call this company a typical Japanese zombie who rests on its past laurels and have no idea what the heck to do.

 

Can you even imagine the cash flow they can monetize with a properly developed Pokemon / Monster Hunter on mobile? It pains me dearly. I don't call them idiots for no reason. Put that IP in the hands of any silicon valley company - even a startup, you got a freaking winner multiple times the success of that BS Zynga.

 

And if they monetize games well globally, why can't they make movies / themeparks out of them? There you have Disney and an ever-lasting franchise. I'm telling you they really suck.

 

Too bad they have neither vision, strategy, nor execution, and Japanese culture / corporate law basically kills the idea of any activists going after them. There's a price for this -- it's the implied # of hit products by the EV. Let's say EV is 10 Bn USD and we estimate every hit to be worth 2-3 Bn, then the implied # of hits = ~4. if you think they can do it, buy it, otherwise no. The cash pile isn't generating any returns and the management has proven its ability to light it on-fire over the past few years. I don't think I trust them.

 

But then again, I'm just a nerd who loves games and in the investing business. What do I know about making games itself?

[Picasso]

In many ways it reminds of of Apple back in 2000 or so, expect this investment is stranded in Japan.  Huge net cash balance, ridiculous brand power despite bad product launches and low market share (that's telling more than anything), and some hairy parts that turn off most investors.  Also complaints about the hardware business, etc. 

 

I mean practically half the business is net cash.  We saw what happened to the stock with a faddish Wii.  Properly monetizing their content has got to give you some pretty stunning upside since it would be more long-term and compounding in nature.

 

Anyway, an interesting stock. 

 

Edit: just as a thought exercise, how much do you think Disney will generate off their $4B purchase of Lucasfilm over its lifetime?  At a $10B Nintendo EV, there's no way you can't generate many multiples on that over time.  Just a matter of whether they do, not because they can't.

[alwaysinvert]

Can you even imagine the cash flow they can monetize with a properly developed Pokemon / Monster Hunter on mobile? It pains me dearly. I don't call them idiots for no reason. Put that IP in the hands of any silicon valley company - even a startup, you got a freaking winner multiple times the success of that BS Zynga.

 

Umm, Monster Hunter is a Capcom franchise.

 

And here you go:

[Chalk bag]

Can you even imagine the cash flow they can monetize with a properly developed Pokemon / Monster Hunter on mobile? It pains me dearly. I don't call them idiots for no reason. Put that IP in the hands of any silicon valley company - even a startup, you got a freaking winner multiple times the success of that BS Zynga.

 

Umm, Monster Hunter is a Capcom franchise.

 

And here you go:

 

My bad lol. Pokemon Go looks v. interesting! We'll see what they can bring.

[Chalk bag]

Can you even imagine the cash flow they can monetize with a properly developed Pokemon / Monster Hunter on mobile? It pains me dearly. I don't call them idiots for no reason. Put that IP in the hands of any silicon valley company - even a startup, you got a freaking winner multiple times the success of that BS Zynga.

 

Umm, Monster Hunter is a Capcom franchise.

 

And here you go:

 

My bad lol. Pokemon Go looks v. interesting! We'll see what they can bring.

 

 

If this becomes reality and well-executed. The company will become the biggest franchise in world gaming, bars none. As a fan I really wish they could make it work.

If I seem to swing between the 2 polar extremes -- it's because it's like watching someone with a good hand in poker screwing up.

[Picasso]

It's worse than seeing someone screw up a good poker hand because even a good poker hand doesn't guarantee against a bad beat.  Nintendo has an incredible franchise that's pretty much impossible to kill and a massive market opportunity with mobile and eventually VR.  I know for myself, probably 3 out of my 5 best childhood memories involve Nintendo.  Then again maybe that says more about my childhood than Nintendo... *shudder*

[whistlerbumps]

Are we sure that Nintendo would actually dominate the mobile gaming market?  The current freemium model is very different than the model they (and probably most of us who grew up with Nintendo) are familiar with.  Freemium requires more real time data analysis (what is/is not working), rapid updates (to implement needed changes) and a smaller emphasis on overall game design/content. 

 

It also requires skill in monetizing as a very small % of customers actually monetize and a small % of those represent a majority of your revenue.  So it takes lot of skill in customer acquisition and conversion.

 

This is a very different business than console or handheld which prioritize design and only release each game once with everyone paying.  While its still a video game, I think mobile is an entirely different business than what Nintendo is used to (and what its core fans want. 

 

Granted they brought in DeNA for expertise in freemium but DeNA is kind of an also ran. 

 

Now of course Nintendo could be successful given the power of their content.  But I definitely think there is a lot more risk to their ability to succeed in mobile than people are assuming.

[alwaysinvert]

Theme park plans:

 

http://www.telegraph.co.uk/technology/2016/03/07/nintendo-to-build-250m-super-mario-theme-park-in-japan/

[ccplz]

Are we sure that Nintendo would actually dominate the mobile gaming market?  The current freemium model is very different than the model they (and probably most of us who grew up with Nintendo) are familiar with.  Freemium requires more real time data analysis (what is/is not working), rapid updates (to implement needed changes) and a smaller emphasis on overall game design/content. 

 

It also requires skill in monetizing as a very small % of customers actually monetize and a small % of those represent a majority of your revenue.  So it takes lot of skill in customer acquisition and conversion.

 

This is a very different business than console or handheld which prioritize design and only release each game once with everyone paying.  While its still a video game, I think mobile is an entirely different business than what Nintendo is used to (and what its core fans want. 

 

Granted they brought in DeNA for expertise in freemium but DeNA is kind of an also ran. 

 

Now of course Nintendo could be successful given the power of their content.  But I definitely think there is a lot more risk to their ability to succeed in mobile than people are assuming.

 

People are already assuming a lot of risk given how cheap their shares are looking.

[kab60]

Sounds like Pokemon for smartphone is a hit - http://mobile.reuters.com/article/idUSKCN0ZO059?utm_source=Twitter&utm_medium=Social

[fareastwarriors]

Sounds like Pokemon for smartphone is a hit - http://mobile.reuters.com/article/idUSKCN0ZO059?utm_source=Twitter&utm_medium=Social

 

My friends are already blowing up my facebook with their pokemon go stuff. crazy

 

 

 

 

http://www.wsj.com/articles/how-pokemon-helped-nintendo-crack-the-mobile-game-market-1467993352

 

How Pokémon Helped Nintendo Crack the Mobile-Game Market

 

A hit game developed by others shows the strength of company’s intellectual property and its potential for success in mobile gaming

[Jurgis]

Downloaded Pokemon Go app, it has problems getting GPS (maybe because I'm indoors) and then goes into "Our servers are experiencing issues. Please come back later..." with elevator muzak and no exit button. Great app quality control guys! (I have oldish Nexus 4, so it also might be my phone, but still...)

 

I heard people from one of my MMO guilds talking about playing P-Go yesterday.

 

Might be a hit, but who knows.

 

Edit: Took a look at Google Play store. Has 100K downloads shield. Rating is 3.6 out of 5 now. Recent reviews are 1-2 stars: people can't connect, bitching about no battle mode and pay-to-win. It's bad if company misjudges the demand and pisses off people when they are on the wave of free publicity. :/

[RadMan24]

This game will continue to fix issues and will evolve (no pun intended). This is exactlu what Nintendo should be doing. iPhones are nearly same size of old game boys. Killer game. Fun, new, unique. Trust me, server issues are a good thing. Albeit as long as they are fixed sooner rather than later :)