Nintendo: How Soccer Moms Will Make This Old Company Seem Young Again

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Pokemon, one of the franchises that made Nintendo famous, will not be featured on the Wii U at launch.

by Thomas Bonnell

Did you know that Nintendo was founded in the late 1800s? I didn’t. I also didn’t know that the new Wii was coming out in less than two weeks. Maybe I haven’t been inundated with a deluge of ads for Nintendo’s new console because of the media is flooded by news of Hurricane Sandy and the election, but it looks like the company’s stock could be sneaking up on people. That’s why it’s a great time to buy.

In the ‘80s and early ‘90s, Nintendo was the king of the console video gaming industry, beating its main competitor Sega so bad that Sega left the console making industry in the early 2000s. They had a rich monopoly on both the handheld market with the GameBoy, and almost every kid had a Nintendo 64 hooked up to their TV so they could play Super Mario or Mario Kart.

Flash forward to this decade and Nintendo is trailing markedly behind their new competition: Sony and Microsoft. While both of the aforementioned companies make many other electronics as well, the PS3 and Xbox 360 (both of the current console offerings from Sony and Microsoft) are markedly more successful that Nintendo’s Wii, despite the Wii’s strong early sales and 100 million units sold overall.

The company announced its latest console entry, the Wii U, in early June, when its stock, ADR (traded globally as NTDOY), was posting at  14.87 on June 5th. Following Nintendo’s announcement of the Wii U in the following days, the stock fell markedly, finishing at  13.44 on June 11th. Investors and traders were not fond of the Wii U.

Why? While some praised the company’s innovation of adding a touch-screen to the console’s controller, introducing an entirely new dimension into console gaming (and perhaps trying to steal some users who exclusively play games on their touch-screen mobile phones) many panned the company for a lack of exciting games that will be available for the console’s launch. Games like Batman: Arkham Asylum will have been available for almost eighteen months when the Wii U is able to play them, and who wants to play a game that has been out for that long? It’s as if Apple announced a new iPhone but said that there would be no exciting new software or capabilities that would differentiate it from previous models, except a few cosmetic changes.

However, the iPhone 5 is selling like hot cakes. While they are two completely different industries and Apple has a consumer base that is one of the largest in the world, Nintendo is going to be able to capitalize on one thing alone to bring their stock up: the holiday season.

Moms, grandmothers, aunts and uncles all need something to buy their younger relatives this holiday season, and with the PS3 and Xbox 360 being six years old now, and both Sony and Microsoft holding off on releasing their new consoles until Q4 of 2013, Nintendo will be the only new car on the block. The company will have a virtual monopoly on the holiday console market, and Nintendo’s stock will capitalize on that fact. It will also be the first holiday season that parents have a chance to grab the company’s new handheld offering, the 3DS-XL, which has received positive reviews so far from critics.

The stock has been making a solid comeback following the disastrous aftershock caused by the Wii U announcement, and is trading at  15.74 as of Friday. The company is rolling out a new Super Mario game along with the console, which will only add to its Q4 earnings.

If you don’t trust my recommendation to buy Nintendo now, take a quick look at history. In 2006, the year the company’s successful Wii was released, ADR began the year trading at  15.25. The company didn’t move much following the announcement of the Wii, but steadily began to build traction towards the holiday season when the Wii was released simultaneously to contend with Sony’s Playstation 3 and Microsoft’s Xbox 360. Two weeks before the console was released, on November 3rd (the same time period we are at now with the Wii U), the stock was trading at  25.85. Following the console’s release and the holiday season, the company finished the year at a remarkable  32.50.

I understand times have changed, the recession has hit, and mobile gaming is much, much larger. But consoles still sell extremely well when the holidays hit, and video gaming has become much more popular and accepted over the past six years. I predict that we can see the same strong performance from Nintendo (ADR) following the Wii U’s release in two weeks, as it has NO COMPETITION this year.

Once the election concludes this Tuesday, be ready for the barrage of Wii U ads that are on the horizon. The company only debuted its first ad for the console on Friday. The excitement is only building for this company’s product. Sounds like the perfect time to buy.

A few stats on Nintendo (ADR):

The 52 week low is 13.00, while the high for that period is 20.25.

The 5 year high is 76.87 back in late 2007, and the low is 13.44 which was recorded earlier this year.

ADR’s market cap is 18.30B.

 

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