Nintendo Entertainment

Analysis of Nintendo (NTDOY)

Even before last week's announcement of Sony (SNE), it seems almost certain that the company's dominance in the creation of the PlayStation 2 Video Game consoles do not yield much more just for the PS3 generation. This time, Sony is a much harder competition, both Microsoft (MSFT) and Nintendo (NTDOY).

While the Nintendo name is most closely associated with the game (NES), the real focus is always the game's platform instead. This is what is the difference between Real Nintendo and its two larger rivals. Nintendo is trying to good games. Microsoft and Sony seek to control the distribution channels.

Nintendo is the only company among the three console makers that began life as an entertainment company – and it shows. Microsoft is known for Sony is known for hardware, and Nintendo is known for its games.

U.S. players acquainted with Nintendo's brand, but U.S. investors usually have little knowledge about us. This is unfortunate because, despite the attention, operations and Sony Video Games from Microsoft, Nintendo is the ultimate pure play video game company.

Nintendo is big. The company surpasses U.S. video games Publishing giant Electronic Arts (ERTS) sales, revenues and market capitalization. In the last count, some argue that in May, Nintendo only market capitalization greater than EA, because its share price has risen considerably in recent years while shares price fell EA. There is, however, much simpler explanation.

Nintendo has a larger market of the CAP Electronic Arts, because Nintendo (the company) worth more than EA (the company). The increase in share prices in May Nintendo is entirely due to improved investor perceptions of future business prospects due to good press area Nintendo's next console, the Nintendo Wii.

However, such an increase in Nintendo's stock price is justified by the relatively low value, the market has been previously placed on business Nintendo. Can not be said of Electronic Arts. Even after the bad S & P 500 over the last three years, EA's share price is maintained at levels that are almost impossible to justify the use of any form of rational thinking. So, Nintendo really is the purest global gaming community.

Nintendo's interesting to write about the prospects for investors for several reasons. The company operates in the rapidly growing sector with excellent long-term prospects. Is a more reasonable price of many public enterprises in this sector (although it does not say much). This is a rather unique (with a unique past) and has a clear vision of what and what not. Of course, Nintendo's tremendous intellectual properties add to the appeal both as a subject of the article and the interest investors.

Nintendo is good steward of its intellectual property. It was very careful to protect the image as the most popular. In fact, some would say The company has also occasionally protective of its strongest franchises.

For example, between 1994 and 2002 there was No new Metroid games, despite the popularity of this franchise. The advantage of this strategy is that when Metroid Prime was released in 2002, received outstanding reviews and sold over a million units. The disadvantage of this approach is obvious. Nintendo actually delivered (the revenue is almost certainly over 100 million dollars), which could be milked franchise throughout the latter half of 1990.

Nintendo is one of the few companies in this position. This rare and precious to spend some time in the vault. Nintendo has few properties. For this reason, Nintendo has more in common with companies like Disney (DIS) and Lucasfilm as the producers consumer electronics.

Nintendo is a company of entertainment, not electronics company. Sales of consoles is inextricably linked to the sale of the game. Sales equipment represent a significant proportion of the total sales of Nintendo hardware sales, but does not support the majority of sales Nintendo whole. In Nintendo consoles sell. Of course, the console itself can affect the experience of playing the role of the platform. For example, the console should be the same diversity of gameplay on the Wii launches later this year. If positive or negative, I do not know. However, the Wii is clearly capable of distinguishing Nintendo of their competence.

Support for third party publishers on the Wii has been the subject of much debate and speculation. Nintendo had less support from the third competition consoles, as Nintendo has been less willing to work with third parties on their terms.

While many publishers are now interested in releasing titles the Wii is not new and significant impediment to successful third party titles. Games will be designed around the Wii. In the past it was easier for third parties to offer titles Nintendo consoles, without targeting that console in particular. Now it will be difficult. Wait a few failed attempts since the beginning.

The long slow decline

The position of Nintendo's team has been declining for over a decade. In fact, the culmination of Nintendo's fortunes in the console business was the NES is (launched in 1985). Has been downhill since then. Nintendo launched the Nintendo Entertainment System (NES) in 1985, the Super Nintendo Entertainment System (SNES) in 1991, Nintendo 64 (N64) in 1996, and the Nintendo Gamecube in 2001.

Here are a global unit sales of these four systems on 31 March this year:

SEN: 61.9 million

SNES: 49.1 million

N64: 32.9 million

GameCube: 20.9 million

Not quite the trend. To add insult to injury, the number of games sold per console, the GameCube tragically fell to reverse this trend.

Here is the number of games sold per console for each of four systems:

NS: 8.08 games

SNES: 7.72 games

N64: 6.84 games

GameCube: Game 9.05

GameCube

Above GameCube number is especially interesting, because sales of GameCube games in America was very strong due to its modest installed base relative to the previous Nintendo enjoyed.

GameCube is better than in the United States than elsewhere. Americas represents 58.37% sales units worldwide GameCube in Japan is only 19.14% of sales worldwide. In America, the number of games sold per GameCube is approximately 10, and Japan is only 7

If the difference in 10 games for the system to 7 games in the system may not sound so important, is much greater difference in the number of games sold through the system between geographic regions than exists in any other current Nintendo platform. Therefore, in the Americas, representing Nearly two three games sold for the GameCube.

Nintendo DS

Initially, it seems that the situation is reversed with the Nintendo DS. Japan accounts for more than 4 out of 10 sales of both DS games and platform for mobile self. However, at the beginning of this year, the percentage of software to hardware sales is a bit higher in America than in Japan. This applies to all Nintendo platforms, but the games on the platform gap varies very wide (GameCube) to quite narrow (DS).

Game Boy Advance

Nintendo's Game Boy sales have always been quite impressive. The Game Boy Advance, which was initiated in 2001 has sold over 75 million units, and more than 325 million units. Do not include sales of games the boys from various 20th Century (the original launched in 1989), which has sold over 100 million and 500 million games.

The Game Boy has helped Nintendo's financial results because it was a great artist more consistent. Taking part in the console wars "is expensive, tedious and risky. Risk is involved from the beginning, the rewards are in the back of travel. Count financed from the proceeds of the Game Boy certainly does not hurt when they are involved in such an entity as the uncertain start of a new console every half ten years.

Financial Results

Given that the sector operates, the Nintendo was a great performance. Business always benefits, it is not easy when there are other divisions to overcome one of the shocks caused by the publication of a new console and enter new products at a constant level.

After all, is the biggest difference between video game company, almost all companies around. All transactions Sales are "new" products, even if there are differences in the same case or apartments in established franchise. Life cycle of individual products is disturbingly similar to the life cycle of Drosophila.

Therefore, the company is dependent on adequate, since many work many times. In general, companies in which only one thing as two decades are the most intelligent in Paris.

Conclusion

Apparently, most Japanese gamers now believe Nintendo Wii comes out on top in this series of console wars. This is a surprising and disturbing conclusions. If the Wii is truly a revolution in the making, I think it will be fine. But I still think that this is a race for Sony to lose.

What will the price of PS3 in December 2007? Even I know that I can not predict more than a race it's a much tougher time.

Nintendo Co. as investment? Shares are cheap, if you expect him to win the next round of console wars. Otherwise, it is difficult to assess. There are two important issues: Wii and handheld games.

I am not convinced that it would be a serious threat to Nintendo's competitive position in the mobile games with high-tech phones phones are fast becoming the 21st Century Swiss Army knife. I do not think the three main obstacles to clumsy controls, a lack of interest on the part of the manufacturer, a lack of interest you will be easy to overcome. Nintendo is in the best position in the company to use the handheld gaming in the future. Will They compete, but will begin to use the knowledge that their products (game machine).

So if you feel comfortable with the position of Nintendo in portable gaming, who really believe in society and the Wii, it would be reasonable long-term investments at this price. However, even taking the large amount of cash and securities on the balance sheet for Nintendo's market capitalization, it is not a "value" purchase style based on the results achieved in the past. Shares in current prices is to put a better future.

Though as Nintendo's prospects at the moment, it is usually safer to bet against the revolution. Therefore, I must say that Nintendo is a very interesting case the price is too high to be a very interesting investment.

About the Author

Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at Gannon on Investing.

Flashback: Nintendo Entertainment System Part 1

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