Nintendo Stock Analysis (FY 2020)

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Our very first stock analysis on an Asian company is dedicated to Nintendo, which is based in Kyoto, Japan. Nintendo is well known to most people – not least because of the phrase “It’s a me, Mario”, uttered by the worlds most famous plumber – Super Mario (video game character). Nintendo is a very traditional company within the video game industry. In this fundamental analysis, we have an in-depth look at the company’s history, the business, operations and of course the financials. Our assessment of the financial situation is based on the Annual Report 2020 (fiscal year ended in March 2020). How does Nintendo perform in our brand-new version of the roovestor company score?
Nintendo Stock Analysis 2020 roovestor Header

Nintendo Co., Ltd. | Asia (Japan) | Gaming | Fiscal Year 2020 | ISIN: JP3756600007

Table of Contents

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Qualitative Analysis

Nintendo Company History and Business Model

The playing card company (since 1889)

Nintendo’s origin goes back to the year 1889. Founder Fusajiro Yamauchi began to sell his first product, so-called “Hanafuda” playing cards. He then extended his very small product portfolio with western playing cards. The first name of the company was “Marufuku Co., Ltd.” which was established back in 1947 in Kyoto. The name than changed to “Nintendo Playing Card Co., Ltd.”. This name indicates that the company (obviously) fully focused on playing cards for some time. Nintendo even started a partnership with Disney to sell playing cards of Disney characters in the past. The stock traded on the Osaka Securities Exchange (2nd Section) and on the Kyoto Stock Exchange in 1962. This was one year before the company finally changed its name to the current company name “Nintendo Co., Ltd.” (1963).

Entering the video game business (since 1977)

Nintendo’s very first home video game system launched in 1977. Contrary to popular believe this was not the Nintendo Entertainment System (NES). In fact, it was the Color TV game series (released in Japan only). The NES was released six years later in 1983. Nintendo sold more than 60 million units of its NES around the globe until today. The next blockbuster product with unprecedented worldwide success was the Game Boy. It was Nintendo’s first handheld video game system (launched back in 1989). Nintendo sold more than 110 million units around the globe until today. For both gaming concepts, the TV-bound video game console and the handheld game console, several new generation products followed. Nintendo has shaped the gaming industry ever since and has also been a driver of innovations such as 3D control and motion control.

The company today

Today three companies dominate the video game industry. Nintendo, Microsoft and Sony form an oligopoly in the industry. Microsoft and Sony are fighting a battle for the most powerful home console to display the most impressive graphics. Nintendo is focusing on gameplay innovations such as motion control instead. The company’s current platforms are Nintendo Switch and Nintendo 3DS. Nintendo Switch is a “hybrid console” (home console and handheld). Nintendo 3DS is a pure handheld system with 3D screen (usable without 3D glasses). The company has remained true to its traditions to this day. The company releases a new console generation every 4 to 6 years. The software is still offered on physical cartridges, but alternatively also as a digital download version. In the meantime, the company has also entered into the mobile gaming market (starting with the social networking game “Miitomo”).

Nintendo SWOT Analysis

One of Nintendo’s strengths is the (semi-)first-mover advantage. The company did not invent the video game console, but it has been in the market longer than its major competitors. Additionally, Nintendo is the only one company to focus on gameplay innovations. The company also owns extremely popular (exclusive) IP and game brands such as Super Mario or Zelda and remains true to its traditions. However, these exclusive brands are essential. Third-party software support is low compared to other consoles (which is actually a company weakness). Furthermore, gameplay innovations bear a higher risk. You never know how the market acceptance will be (e.g. the Wii U system was a failure).
On the opportunities side, we see great potential in the mobile gaming market. Nintendo has already proven with Pokémon Go that it is capable of “printing money” in this sector as well. Furthermore, the video game industry is growing and is among the winners in the Corona pandemic. One threat to the company is the ever-increasing competitive pressure. In addition, gamers are switching from classic console gaming to mobile and online gaming. Originally, Nintendo refused to enter the mobile gaming market. However, the change in the industry has left no choice other than to follow the pack.

Nintendo President: Shuntaro Furukawa

People following the company may remember Satoru Iwata as being the company president for a long time (from 2002 – 2015). When Satoru Iwata died from complications caused by cancer, Tatsumi Kimishima took over his role as the companies president. Only 3 years later, back in 2018, Shuntaro Furukawa took over as the sixth and current company president. He is 22 years younger than his predecessor and started his company career as an accountant in Germany. Thanks to his international experience, he is fluent in English. Furukawa helped to development the current console generation of the company, the Nintendo Switch. He took over a well-running business. The company managed the turnaround with its new console (the previous one, the Wii U, was a failure).
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Quantitative Analysis

Nintendo roovestor company score

Nintendo Stock Analysis Fiscal Year 2020 roovestor company score
Illustration 1: Nintendo roovestor company score

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Disclaimer
We assume no liability for the accuracy of the financial data. Sources of the financial data are foremost IR websites of the company subject to the analysis. Additionally we rely on further data and information from Thomson Reuters EIKON. Moreover, unless better data is available, we do our own calculations of available data for KPI determination. Our stock analyses are by no means to be understood as a buy or sell recommendation and do not provide any conclusions regarding the future development of the company (and thus the future price development of the share).