Nintendo’s American depositary shares are down 32% in 2021.
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Videogames have enjoyed a pandemic-era renaissance, but shares of the industry’s original player have been left behind.
Nintendo
’s
American depositary shares are down 29% in 2021.
The Japanese videogame giant (ticker: NTDOY) is still making games that are adored by its fans. But investors have spent much of the year looking for companies making big promises about the “metaverse”—the idea of virtual worlds that enable social interaction and commerce. That has powered stocks like
Roblox
(RBLX) and Nvidia (NVDA) to huge gains this year. Roblox, which makes tools for gamers to create online worlds, mentioned “metaverse” 17 times in a recent investor-day meeting.
Sure enough, Roblox is up 160% since it went public via a direct listing in March. The company, which is facing years of annual losses, trades at 21 times next year’s sales. Nintendo? Just 3.5 times.
Meanwhile, Nintendo remains as conservative as ever about its ambitions. In a 48-page earnings presentation last month, it didn’t mention the metaverse. That’s despite the fact that its breakout pandemic hit, Animal Crossing: New Horizons, is a mini metaverse itself.
The game has a virtual currency, costumes, and online features that allow gamers to interact with friends on their personally curated tropical islands. It has sold nearly 35 million copies since its March 2020 release.
Any future metaverse success isn’t in Nintendo’s numbers. For its fiscal 2022, which ends in March, Wall Street expects the company to earn $3.74 per American depositary share, down from $4.64 in fiscal ’21. Sales are expected to fall to $14.5 billion from $16.2 billion. Supply-chain woes and semiconductor shortages are partially responsible for the estimated declines, which would be the first in six years.
Wedbush Securities analyst Michael Pachter says he doesn’t see demand waning for the company’s Switch console, which has sold about 93 million units since its 2017 debut. The device allows gamers to play in both handheld mode and via a television. In October, Nintendo launched a higher-priced model featuring a sharper OLED screen.
“You’re seeing a decline in sales, and they’re not going to hit their initial forecast for units for Switch this year, but it’s purely the supply chain,” Pachter says. There’s still a strong market for the Switch, he adds. “Go look for a Switch on eBay. They’re priced well above retail.”
Pachter upgraded Nintendo shares to Outperform from Neutral in late October. He says that recent games and a strong pipeline of releases could get consumers—and investors—excited about Nintendo again. Next year, Nintendo has its strongest release slate in years, including new installments in its Legend of Zelda and Pokemon franchises.
New games could create renewed momentum for the Switch, helping Nintendo exceed Wall Street’s undemanding forecasts.
At a recent $57, Nintendo’s U.S.-listed stock trades at just 15 times earnings estimates for the next 12 months. That’s well below a five-year average around 23 times.
After years of grumbling from Wall Street, Nintendo is finally taking steps to give investors—and gamers—what they want. Mario and friends, voiced by Chris Pratt and a star-studded supporting cast, will jump to the big screen next year. Meanwhile, Comcast (CMCSA) is planning a Mario-themed expansion of its U.S. theme parks.
Most important, Nintendo is starting to make money in a more recurring fashion—investors’ favorite kind—through its subscription service, Nintendo Switch Online.
“The Switch has become a phenomenon that so many different demographics are latching on to,” says Roundhill Investments’ vice president of research, Mario Stefanidis. “Nintendo really has never been doing better.”
Nintendo currently makes up roughly 0.5% of the
Roundhill Ball Metaverse
exchange-traded fund (META). The ETF’s leading positions are Nvidia and Roblox, comprising 11.2% and 9.7% of its portfolio, respectively.
Nintendo has earned some of the skepticism shown to it by investors. More than any other videogame giant, the company has been slow to embrace mobile and free-to-play games, as well as online play and esports.
That means Nintendo is still missing out on a huge opportunity. Nick Grous, an analyst at Cathie Wood’s Ark Invest, estimates that the global videogame business will hit $200 billion in 2021, with mobile gaming making up roughly half of that figure.
So, Nintendo still has a chance to win in the mobile world.
“You have 20-plus years of hundreds of millions of people familiarizing themselves with the characters that Nintendo wholly owns,” Grous says. “That is a tremendous value, especially as we continue to spend more time online and continue to push into these virtual worlds. That is really where I think Nintendo will start to separate itself out from other game publishers.”
Write to Connor Smith at connor.smith@barrons.com
