Market Overview

At 125, is now the time to invest in Nintendo?

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By Patrick Foot, financial markets writer at IG

On Tuesday, Japanese gaming giant Nintendo passed a milestone that not many companies on global exchanges can boast of: its 125th anniversary.

50 of those 125 years have been spent listed on Japanese stock exchanges, a long and venerable history that has seen the company benefit from startling creative thinking and foresight. For that reason, it is still one of the biggest video games companies in the world, and the only major console manufacturer that focusses solely on video games.

But celebrations at Nintendo’s Kyoto headquarters will be tempered by a few problematic years for the business. It started 2014 with an announcement that projected Wii U sales for the fiscal year were being reduced from 9 million to 2.8 million. Bad news has continued to dog the company since, and its share price is currently down over 20% from January 16, the day before the announcement.

That poor performance becomes even more stark when compared to Japan’s leading index, the Nikkei 225. Despite a tough economic year for Japan, the Nikkei is currently up 2.5% and posting seven-year highs; Nintendo’s last earnings announcement saw operating loss nearly double that of the previous year. Wii U sales were up, but still well off target sales. The revised 2.8 million figure was not hit and 3DS sales (previously Nintendo’s saving grace) missed a revised target of 13.5 million (down from 18 million).

New targets were set – 3.6 million Wii U and 12 million 3DS sales – and Nintendo’s stock price dropped 13% in ten days. Clearly, Nintendo has its work cut out if it wants to remain on course for a 250th centenary in 2139.

Even the continuing slide in Japan's currency has failed to spark Nintendo into life. Data from IG's forex trading platform.

First stop is their upcoming earnings announcement on October 29, where the company reports on how it’s performing against targets halfway through its fiscal year.

So far, Nintendo has kept reiterating its promise to return to a profit of ¥20 billion this fiscal year despite losing almost ¥10 billion in its first quarter. And there are plenty of reasons for investors to feel cautiously optimistic about its ability to reverse its current downtrend, even if the market consensus is that ¥20 billion may be a stretch too far.

The release of Mario Kart 8 in May this year and Super Smash Bros in Q4 2014, with Bayonetta 2 and Hyrule Warriors in between, should provide compelling reasons for the Wii U to be a must-have gift this Christmas.

In Japan, they will be joined by the newest iterations of the DS series – the New 3DS and New 3DS XL – which, as some commentators have noted, brings Nintendo’s release schedule for the DS closer to that of Apple.

Further beef to Nintendo’s arsenal comes from its impending ‘Amiibo’ figures, collectable NFC additions that resemble somewhat the hugely successful Skylanders and Disney Infinity series. Whilst it has been noted that the success of ‘Amiibo’ depends on sales for the Wii U and New 3DS – since those are the only platforms that feature native support for the figures – they should help maximise profit from devices and could act as a sales driver.

Nintendo has been forthcoming about the reasons for the Wii U’s failure, which it blamed mainly on confused marketing and a lack of support. Now, it has a host of new products to push core consoles forward – but whether it can address marketing issues, and whether those products can swing Nintendo back to profit soon enough to remains to be seen.

It would be foolish to write off a company that has adapted and innovated for 125 years, and perhaps Nintendo’s venerability is the biggest single reason to believe that they can return from this current malaise. For investors, fans and Nintendo themselves though, the next six months should be a very interesting time.

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