Are the Best Days Behind Nintendo?

As pandemic restrictions are gradually removed, we ask Morningstar's Kazunori Ito in Japan what to like about the narrow-moat gaming console giant.

Kate Lin 19 May, 2022 | 8:00
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Kate Lin: Welcome to Morningstar. Nintendo Switch consoles were among the top purchases during covid. Now, as pandemic restrictions are gradually removed, holiday travel is back. What does it mean for the game developer? Kazunori Ito, Director for Equity Research at Morningstar Asia, is here to tell us.

Hi, Kaz. Switch may be the best-selling game console ever, but are the best days behind the gaming console giant?

Kazunori Ito: Well, yes, it's inevitable that people decide to use more money for the outside activities such as travels going forward. But meanwhile, I think Nintendo is performing very nice and demand for Switch is still solid by leveraging its attractive game pipeline. So, Nintendo guides 21 million console shipments for this fiscal year, which is 9% down from the previous year. But we need to know that Switch is now moving towards the end of its cycle. So, 6% down is not bad. And the company still expecting 21 million console shipment is not bad. So, in fact, Nintendo's past hardware has never exceeded 20 million shipments in its 7th fiscal year. So, we think that Nintendo is succeeding, enabling the longer lifetime for the platform.

Lin: This year, blockbuster releases like Pokémon Legends: Arceus excited many gamers. In your opinion, is this success replicable, and what are some of the firm's next generation plans?

Ito: Yes, I think the success is replicable because Nintendo has a very strong game asset. Nintendo's strength is its attractive game pipeline. Nintendo used to operate two platforms in the past – one is home consoles, the other is portable consoles – but now has integrated two platforms into one Switch platform. As a result, Nintendo is now able to launch two or three big first-party titles every year. So, in fact, 70% or 80% of Nintendo's gaming revenue comes from its own software. This means that Nintendo can differentiate itself from others by leveraging its own attractive games, and Nintendo's games will continue to drive console sales even on the next platform.

And Switch's active users have exceeded 100 million. So, the key challenge for Nintendo is whether the company can succeed most of the user base into the next generation platform. We think Nintendo will try to increase the number of membership for its monthly subscription program by leveraging its old game titles and offer the game program so that more people would decide to join into the program.

Lin: Other than Switch and its game lineup, what else do you like about Nintendo as a stock?

Ito: Yeah, we want to emphasize about the 10-to-1 stock split they had just announced, which should be the first time throughout its history. And the reason we believe that the stock split will be welcomed by the market is that that will offer a lot of – more of the flexibility to investors. So, before the split, the investors have to – the minimum amount of investing in Nintendo was JPY5 million or JPY6 million, which is not a small amount. So, the split will enable to invest in Nintendo in one-tenth of the amount. So, that will give more flexibility, especially for the retail investors.

Lin: Wonderful. Thank you so much, Kaz. For Morningstar, I'm Kate Lin.


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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Nintendo Co Ltd58,730.00 JPY0.20Rating

About Author

Kate Lin

Kate Lin  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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