Nintendo Switches Things Up

Nintendo Switches Things Up

over 3 years ago2 mins

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Following a 3% jump on Thursday, Nintendo’s share price has now risen 17% this year – with the Japanese games animal crossing thresholds not seen since 2008 🎮

What does this mean?

Four years back Nintendo was stuck in the doldrums after its follow-up to the family-friendly Wii console flopped. Then came the Switch – a system that allowed for gaming at home or on the go. While sales have occasionally disappointed, the Switch has been a success overall – so much so that Nintendo has struggled to meet demand recently, with the coronavirus causing both heightened interest in gaming and supply chain issues.

After surprisingly strong earnings last month, several analysts raised their target price for Nintendo’s shares – pointing out that a growing appetite for digital downloads rather than physical games should push the company’s profit margin higher. Hungry investors pushed Nintendo’s stock up 40% from its March lows – making the firm worth more than Japan’s biggest bank or retailer.

Nintendo shares haven’t been here since the height of Wii mania (Source: Markets Insider)
Nintendo shares haven’t been here since the height of Wii mania (Source: Markets Insider)

For a gaming company which relishes its reliance on a few big-name franchises – two thirds of the Switch’s biggest hits have been made in-house – this week also brought the welcome announcement of new Pokémon titles. Other than that, however, the cupboard is currently bare until Christmas – in stark contrast to Nintendo’s competitors… 😒

Why should I care?

There may be bananas ahead along Rainbow Road. While the Switch only launched in China last December (in partnership with local internet giant Tencent), plush new console and game releases from rivals Sony andMicrosoft could leave Nintendo’s hopes of selling 19 million consoles in 2020 – just less than 21 million last year – looking optimistic.

Nintendo also seems less concerned about the rise of online-only alternatives like Google’s Stadia and fast-growing Southeast Asian phenomenon Sea. Focusing on big-brand stories over microtransactions is all well and good – but a second wave of coronavirus could seriously delay production of lucrative new games and consoles responsible for 96% of Nintendo's revenue (which in 2018 was eclipsed by Sony’s PlayStation Network alone) 😮

According to investment manager Invesco, the gaming industry’s long-term growth potential looks strong even beyond the pandemic. For a better idea of how Nintendo might fit into that future, check out our Pack on Media, Gaming, and Telecoms

The global gaming industry is already three times larger than music (Source: Invesco)
The global gaming industry is already three times larger than music (Source: Invesco)
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