Nintendo (7974) – Great Business Recovery Story, but is it in the Share Price
Nintendo is a force for good. Nintendo has enabled the most awkward family groupings to get on while on holiday. It acts as a complaint suppressant on long journeys in the car / plane / train / push-buggy. Through its games, it teaches social skills to those who otherwise might struggle to interact with others. Plus, it does nice colours. In our view, it is therefore “a good thing” that the company is back on the success trail with Switch.
First off, Nintendo already has a market cap of ¥4.0tril. In comparison, Activision Blizzard (ATVI US) has a market cap of ¥4.4tril (FY16 OP ¥153bil, FY17e OP ¥222bil) and Electronic Arts (EA US) has a market cap of ¥3.2tril (FY16 OP ¥108bil, FY17e OP ¥171bil). Given that Nintendo generated ¥29bil in FY16 OP and is forecasting ¥60bil in FY17bil, you can see the problem – one that gets worse when you look at sell-side consensus forecasts for ATVI and EA. In FY19, ATVI's OP is expected to rise to ¥299bil, while EA's expected to rise to ¥247bil.
That problem is alleviated somewhat by Nintendo's cash position, which at ¥946bil means that enterprise value (EV) comes in at ¥3.1tril: below EA's ¥2.9tril, but above ATVI's ¥4.6tril. Now, there are mixed views about whether or not shareholders can ever assume that Nintendo will return that cash, but if we assume it will, then Nintendo's EV comes down to ¥3.1tril, which is less than ATVI's EV of ¥4.6tril, but more than EA's EV of ¥2.9tril. So, Nintendo doesn't need to match ATVI's current OP of ¥153bil rising to ¥299bil by FY19, but it does have to do better than EA. Given that EA's current OP is ¥108bil versus Nintendo's ¥29bil, this means Nintendo has to be on course to do better than EA's targeted ¥247bil in OP in FY19.
Now, if you are a Nintendo historian, you can point out that it's been there and done it. In FY05, the firm had an OP of ¥90bil on revenues of ¥509bil. By FY08, OP rose to ¥555bil on ¥1,839bil in revenues – i.e. been there, done that, got the T-shirt – twice over, so to speak.
Now, just on the off-chance that Nintendo does manage to repeat its feats of the mid-2000s, it is worth having a quick look at what are the anticipated rewards for you, the investor.
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.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.