Market Overview

Nintendo's Value Declined 77% in Five Years

Six years ago, Nintendo (OTC: NTDOY) was on top of the world. The company had overcome two console blunders (Nintendo 64 and GameCube, both of which lagged behind in sales to their competitors), and released a new console -- Nintendo Wii -- that would go on to sell 97 million units worldwide.

Nintendo's success was not unprecedented. From the late 1980s through the early 1990s, the company produced the two most successful game consoles: the NES and Super NES. Sony (NYSE: SNE) became the new champion in 1995 and led the industry for 10 years. During that time, Nintendo relied on the success of the Game Boy -- which dominated handheld gaming for more than 15 years -- to earn massive profits.

The Japanese game maker continued that trend with the release of the Nintendo DS. As the first touch screen gaming device, the DS was regarded as a risky departure for Nintendo. There were rumors that the company was developing another Game Boy to replace the DS in case it failed, but it proved to be a huge success. As of 2012, the DS has sold 152 million units worldwide -- more than any other Nintendo-made device.

That success was expected to continue when the Nintendo 3DS was released in March 2011, but after consumers scoffed at the $249 price tag and the lack of quality software, the Nintendo 3DS flopped at retail and prompted a premature price reduction. In the months that followed, sales of the 3DS finally began to pick up, but Nintendo's share price continued to decline.

The declines have been so severe that Nintendo has lost 77 percent of its value since October 2007.

Sales of Wii U, Nintendo's latest console, are expected to exceed the original Wii this holiday season, despte analyst doubts about the console's future. Over the next four years, IHS (NYSE: IHS) believes that the company will sell 56.7 million units -- considerably less than the 79 million Wii consoles that were sold during its first four years on the market.

At this point, 50 million would be a lucky break for Nintendo. With an MSRP of $299 (for the basic model) and $349 (for the deluxe package), Wii U is Nintendo's most expensive console yet. The games are also more expensive. While SNES and Nintendo 64 games were manufactured on expensive cartridges and frequently retailed for $59.99, GameCube and Wii games retailed for $49.99. With the Wii U, Nintendo has returned to the higher pricing platform.

It is not yet known if Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) will raise the price of new software when the next game consoles are released. Both companies already charge $59.99 for their games.

Year-to-date, Sony -- which manufactures televisions, computers and other electronics in addition to video games -- is down more than 45 percent. Microsoft, which released Windows 8 and Windows Phone 8 on October 26, is up nearly one percent YTD.

Follow me @LouisBedigianBZ

Posted-In: Microsoft Nintendo Sony Wii UNews Tech Best of Benzinga

 

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