Report
Kazunori Ito
EUR 850.00 For Business Accounts Only

Morningstar | Nintendo Expects Longer Lifetime for Switch Console Than Past Platforms; Shares Undervalued

Nintendo intends to sell 18 million Switch consoles for the new fiscal year, which is larger than 17 million for the previous year and in line with our forecast of 18.5 million.  We view the market has been concerned that Switch’s shipment will start to decline in 2019, as Nintendo’s past platforms had experienced in their third year (the only exception was Wii), which is the reason for its poor stock performance in 2018.  However, we believe that the Switch cycle will be longer than the typical Nintendo platform, as we expect that the launch of an affordable version of Switch and more engagement of third-party publishers will contribute to extending Switch’s lifetime. Nintendo’s share has surged approximately 40% this year, which is also driven by the press reporting of Nintendo’s entry to the Chinese market. We believe that the growth of the Switch platform is not fully embedded to the current share price. We plan to revise our forecasts after meeting with the company in mid-May but do not expect to make a material change to our fair value estimate of JPY 49,000.

We believe that the launch of an affordable version will contribute expanding the user base of the Switch platform as Nintendo can sell more than one console per household. And more importantly, Nintendo can leverage its resources effectively to prepare an attractive game pipeline for Switch. Nintendo had been operating both home and portable consoles since the launch of Game Boy in 1989, but we believe it is reasonable to integrate two consoles, so that Nintendo can concentrate delivering attractive games more steadily for Switch.

President Furukawa mentioned at the press meeting that Nintendo made an alliance with Tencent and submitted the application to sell Switch consoles in the Chinese market, and since it is not approved, Nintendo’s guidance does not include the shipment number in China. While it is difficult to forecast the progress of the review, we do not see any obstacles for the approval, as other game consoles, such as PlayStation 4 and Xbox One, are already sold in the market, and Nintendo’s characters are less violent and already well known in China.

We are not concerned that Nintendo’s full-year operating income guidance of JPY 260 billion is below our forecast of JPY 380 billion. Nintendo plans to sell 125 million games for the new fiscal year, which is slightly above 119 million in the previous year. However, we view that the number is conservative, considering the increasing user base and the attractive game pipeline in 2019, including Pokemon Shield/Sword, and Animal Crossing. We therefore forecast 145-150 million game shipments for the new fiscal year.
Underlying
Nintendo Co. Ltd.

Nintendo is mainly engaged in the development, manufacture, and sale of home-use game hardware/software and peripheral equipment as well as software under the name of "Nintendo DS," "Nintendo 3DS," "Game Boy," "Nintendo 64,"" Game Boy Advance," "Wii," "Nintendo GameCube," "Game Boy Color" and "e-Reader (trading card games)." Co.'s principal software trademarks include "Pokemon," "Super Mario Bros.," "The Legend of Zelda," "STARFOX64" and others. Co. also provides online games and repair services. In addition, Co. is involved in the manufacture and sale of Japanese playing cards called "Karuta," playing cards and board games, as well as the management of intellectual property rights.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Kazunori Ito

Other Reports on these Companies
Other Reports from Morningstar

ResearchPool Subscriptions

Get the most out of your insights

Get in touch