Despite the recent downtrend, Nintendo stock is up 27.2% year-to-date and an additional 72.6% from the 52-week low of JPY31,880 recorded during the market sell-off on March 13 (as of October 23) .
Nintendo’s share price is up 16.3% since early August. The reason for the stock’s breakout rally is the blockbuster earnings report for the first quarter of 2020 released on August 6th.
The Japanese console giant reported net sales of JPY 358 billion, up 108% from JPY 172.1 billion in the year-ago quarter. Operating income rose a staggering 427% from JPY 27.4 billion to JPY 144.7 billion year over year.
Nintendo’s sales growth was driven by the Switch segment. In the three months ended June, the company sold 5.68 million of its consoles worldwide, up 167% year over year.
According to Statista, the company has sold over 65 million Switch consoles worldwide since its launch in 2017 – a success that saw Nintendo’s share price rise.
Nintendo Switch consoles have been sold worldwide since launching in 2017
At the start of the coronavirus pandemic, Switch consoles sold out almost everywhere as customers rushed to get their hands on the console to keep them busy during the lockdown. At the same time, Nintendo had a global Switch shortage as the pandemic slowed production at the company’s assembly partner’s facility.
The game company’s best-selling title last quarter was Animal Crossing: New Horizons. In the three months to the end of June, 10.6 million copies were sold. Total revenue for the game is now over $ 22 million.
More than half of the consoles first used during the quarter were used to play Animal Crossing. For many who got involved, in-game social interaction proved to be a temporary panacea for lack of physical contact amid global lockdowns.
Nintendo tops the charts
Sales should be strong when Nintendo reports its earnings for the second quarter of 2020 on November 5. The company had the best console sales in August in the US, according to NPD Group, the industry tracking company.
Mat Piscatella, industry analyst and executive director at NPD Games, tweeted on Sept. 14th that dollar revenue from the Switch exceeded the previous record – including Nintendo – when the Wii console was sold in August 2008.
Despite robust sales, Nintendo lags behind both Sony  and Microsoft [MSFT] in the console cycle. The upcoming PS5 and Xbox X series will dominate game news and will continue to do so for the next several months.
The switch is expected to receive a next generation upgrade in 2021 to stay relevant. However, an entirely new console is unlikely before 2022 or 2023. There were five or six years between the major versions of the Nintendo console between the 1990s.
While the hardware developed by Nintendo is innovative, their approach is conservative, as is their approach to business and finance in general. The company achieved half of its net profit target in the first three months of the financial year, but maintained the guidelines previously issued Financial Times.
“Your leadership isn’t even a joke anymore. It just can’t be taken seriously, ”Serkan Toto, CEO of Kantan Games Gaming Consulting Company, told the publication.
“Your leadership isn’t even a joke anymore. It just can’t be taken seriously ”- Serkan Toto, CEO of Kantan Games
This conservative approach has led a number of analysts and experts to conclude that Nintendo might be better able to invest more in building a cloud platform and extending the life of the Switch.
The apple of the game
Aaron Edelheit, CEO of Mindset Capital, argues that the company could become the Apple of Gaming. “The rating is still inexplicably low,” said Edelheit BusinessLive. “The company is innovative at a level for which nobody finds recognition.”
Another reason to focus less on hardware is that it makes more financial sense to do so. Toan Tran, Investment Manager at 10 West Advisors, believes that a new console is not a guaranteed money maker and may even struggle to match the income generated by the Switch. He argues that by building a cloud platform and updating the Switch, Nintendo can keep its user base going.
“With each generation of consoles, the installation base is reset to zero and their profitability is essentially reset to zero. Nintendo may have a continuous installation base of, say, 100 million consoles that will evolve over time, ”said Tran Bloomberg.
According to Nintendo, there are currently 22 reviews for Nintendo Market observation Dates of 17 purchases, while five suggest holding the stock. The average target price is 65,305 JPY, an increase of 16.93% from the closing price on October 22nd.
|PE ratio (TTM)
|Quarterly sales growth (compared to the previous year)
Nintendo share price, Yahoo Finance, October 23, 2020
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