Nintendo(TYO 7974) Is The Best Gaming Stock. I Think.

Nintendo(TYO 7974) Is The Best Gaming Stock. I Think.

I think, uh...

Above all, I’m a fan and shareholder of Nintendo. This is not investment advice. Before investing, we advise you to be careful.

Nintendo, I think this is the best series of games you can buy. My partial reasoning:

  • The games are all related to intellectual property. And Nintendo owns the most famous intellectual property. Mario, Pokemon (in part), Zelda etc. have a reputation that few other games have.
  • The power of prizes. Nintendo can sell the game without a discount, and people will buy it. By the way, Nintendo has released its latest game, Super Mario 3d All-Stars, for $60 – just 3 relatively simple ports. However, they sold 5.21 million copies in 12 days (see page 10). Because of their IP performance, they can also sell the old Wii U ports at a higher price. Their shares don’t get much discount either. No other gambling company can claim such pricing power among its players. This is one of the reasons why revenue increased by 209% in September (click on the first link).
  • Lower construction costs. Nintendo’s gaming philosophy is based on the notion of fun. Unlike developers such as Ubisoft, EA, Bethesda (bracket acquired by MSFT), Rockstar, Activision Blizzard, etc., they thus follow a unique strategy in game development, which translates into development costs that are much lower than those of their colleagues. Nintendo’s gaming base (which includes hyper fans for children) also supports these efforts. This has advantages for Nintendo in both directions over its competitors.
    • The costs of wildlife development are increasing rapidly and at this rate these companies will recoup the costs more slowly.
    • We don’t know, but we assume that Nintendo’s development costs are lower per game. This means that Nintendo is much easier to write off.
  • Other gambling companies on various stock exchanges around the world have much higher valuation multiples. Nintendo, which is expected (in the next 4 years) to grow more than most of the developers I’m looking for, is considered relatively cheap. Simple comparison of notes.
  • Nintendo has more than enough cash reserves. It is currently the richest treasury company in Japan. Given Nintendo’s experimental strategies, this ensures that Nintendo doesn’t end up in a liquidity crisis.
  • Nintendo is also the owner of the platform. This means that they can benefit from any game sold by other developers on their platform and that their own games have a higher profit margin. This has also enabled the introduction of the Switch Online subscription service which, despite its low cost, could generate a significant return on investment, especially in the coming years. What’s more, unlike Sony and Microsoft, Nintendo earns money from the start by selling each system.
  • Future plans (based on rumours)
    • Nintendo is expected to release a Pro version of the Switch (or just an update of the internal components of the Switch), which will increase sales of the Switch (management has already updated its forecast by 20% today).
    • Nintendo management did not shy away from the possibility of introducing other forms of online gambling services. They’re experimenting with the flow of the game. Control: The release of the latest edition is already available for streaming on the Nintendo Switch.
    • In short, there are many others that are not mentioned here.
  • A diversified and growing source of income.
    • Their retail business will grow along with their gaming revenues.
    • Unique products such as Mario Kart : Home Circuit, Amiibos (which is a combined form of product and purchase in a single application), Nintendo Labo, etc., all these examples show a company that has managed to integrate the physical and virtual world well. Although these products represent only a small part of the revenue equation, they are expected to continue to grow.
    • Your film companies (soon in cooperation with Illumination) can continue to grow. Management stated that it would probably invest in these companies because of their success. This could lead to the production of more television programmes and similar products. However, it should be noted that Nintendo tends to use partnerships to penetrate these markets rather than producing directly, i.e. receiving a small proportion of its total revenues.
    • The theme park cooperates with Universal.
  • Future games can bring significant profits for Nintendo. Although we don’t know exactly what they will look like, management has already said that they have bundled their development efforts (before the split into Wii-U and 3ds), which will result in better performance.
    • One of the disappointments is that so far Nintendo has not invested enough resources in mobile games and does not seem to have received revolutionary products like Pokemon Go. However, the games that Nintendo distributes on the standard have a very high level of compliance, which somewhat compensates for the lack of games on mobile devices.
    • As an example, we compare Super Mario Odyssey to Witch 3. Witcher 3 (a very popular game that led to the release of the film), which was released in 2015 and is available on many platforms, of which (from May) about 50 million copies have been sold. The base price of the game was much lower than the $60 Nintendo was asking for. However, Super Mario Odyssey sold about 19 million copies because it ran on the same platform. This is by no means an apple on an orange font. But I have presented this example to illustrate the following point and to give you an idea of the power of the participation platform.
  • Brand loyalty. Nintendo fans are very loyal to the brand thanks to Nintendo’s unique approach to the market. While other publishers are constantly complaining about players and vocal minorities, Nintendo, while remaining loyal to its fans, has managed to protect itself from the most contempt some players have for other publishers. EA, Activision Blizzard, Epic, Ubisoft (even the CD Projekt Red) etc. seem to be constantly scorned by their minority singers. As a result, there is no sense of community and brand loyalty. In this respect, Nintendo tends to perform exceptionally well, which is essential for game sales stability. This also explains to some extent the exceptional seizure rates, pricing power, etc. The fanbaza of various games also has the reputation of being useful and hospitable, because it has no toxicity (Smash – exception) for other gaming communities.
  • Competent executives. That’s the name of the game. While other studios are constantly confronted with the need to change direction, the developer leaves the studio and so on. The current management of Nintendo has proven itself. *ARKK ETF contains NTDOY as action.

Risks :

  • Nintendo has a habit of making extremely lucrative products and suddenly goes crazy. However, such a failure is unlikely in the next 4 years.
  • Sony and Microsoft will launch their next generation console. Although this is unlikely to affect sales (because of Nintendo’s blue ocean strategy), as management did not foresee this, they decided instead to update their sales forecasts.

Final comment :

The games have entered the megatrend field. I think Nintendo is in the best position to understand this mega-trend because they have all the ingredients for success. In addition, the underestimation of the market by Nintendo compared to its competitors provides a good opportunity to further develop this trend.

Games are ultimately a high-risk company and no other publisher (with the exception of MSFT, which is already advertised to the bone) has a comparable position to Nintendo in this market.

TL;DR: I think Nintendo is the best game action for the next 3-4 years.

Have a nice day!

The source: Original reference

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