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3 Reasons Not To Count Out Nintendo & The Wii U

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3 Reasons Not To Count Out Nintendo & The Wii U
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Nintendo (OTC: NTDOY) enjoyed a nice sales boost during June quarter, moving 510,000 units of its latest console. During the year-ago period, Nintendo sold just 160,000 units.

Despite the gains, Nintendo has only sold a total of 6.68 million Wii U units since the console was released in November 2012. By comparison, Sony's PlayStation 4 crossed the seven million mark in just six months. If a new report is accurate, PlayStation 4 sales may have now exceeded nine million units worldwide.

Benchmark analyst Michael Hickey told Benzinga that Wii U is "clearly not getting the traction that [Nintendo] envisioned for that platform." He said that if sales don't pick up (even more than they already have), consumers shouldn't expect an elongated cycle. Nintendo instead may opt for a new hardware idea that can recapture some of the market share it lost to Sony and may eventually lose to Microsoft if Xbox One continues to flourish.

"Nintendo certainly doesn't want that messaging at the moment because they're still trying to make the best of Wii U," said Hickey. "I think you're right to be somewhat suspect that they'll be able to get any sort of sales momentum."

Related Link: Nintendo Promoted 'Mario Kart 8,' Nintendo 2DS With $9.7 Million TV Ad Campaign

Second Chances

Nintendo may be struggling, but it is the king of comeback stories. The company may not have been able to save GameCube (Nintendo's least successful console), but it did prevent the Nintendo 3DS from enduring a similar fate.

"[The Nintendo] 3DS was a platform that the majority of the market thought would be under significant pressure from mobile platforms and so forth," said Hickey. "But with the price cut and a portfolio of content, they've done pretty well."

Down But Not Out

Wii U's long-term prospects may not be good, but Hickey doesn't think that investors should give up on the company just yet.

"I don't think you want to count [Wii U] out yet," he said. "Let's see how it does with the holiday. They have some games coming that make a fairly compelling value proposition for that platform."

That said, Hickey still expects Nintendo to replace Wii U sooner rather than later.

Emerging Markets

Before Nintendo's next console arrives, the company plans to develop specific hardware for emerging markets. Nintendo likely hopes that this venture will make up for any losses caused by Wii U, but is it really enough?

"It's possible," said Hickey. "I think it's incremental, potentially, but I don't think it's a game-changer for them. Content is king. Nintendo has the content, and they own it. Maybe they don't have the platform at the moment to really sell it. But don't bet 'em out that in the future they can't create a platform or leverage existing platforms to take their content to consumers. Ultimately, multiple generations of consumers love Nintendo content and will likely continue to love it in the future. That's a core asset."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Posted-In: Benchmark comments Michael Hickey Microsoft Nintendo PlayStation 4Analyst Color Tech Best of Benzinga

 

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