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Nintendo, Stock Splits, Evergreens, and The Boom-Bust Cycle
Stock splits are all the rage these days -- and Nintendo is joining the party
In times of turmoil, it’s important to start the day off right…
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🎮 Nintendo Joins the Split Parade
Last week, Nintendo announced a 10-for-1 stock split that will become effective on October 1, 2022. The Kyoto-based video game giant joins the likes of Alphabet (formerly known as Google), Amazon, and Shopify in splitting its stock this year.
Quick refresher: Stock splits are, as TCII notes, mostly cosmetic nonsense. It’s a bit like deciding to slice a pizza into twelve pieces instead of eight. The overall pizza doesn’t actually get bigger, it’s just broken down into more pieces. Still, people seem to like splits. Probably because it feels like you’re getting something for nothing.
Not true, but c’est la vie.
And, while the justification for stock splits seems a bit strained in this age of fractional shares, Nintendo’s split actually makes sense. In Japan, shares of Nintendo must be purchased in lots of 100 — which makes for a pretty steep entry fee as individual shares currently trade upwards of $400 a piece.
I’ll save you the math: It costs more than $40,000 to invest in Nintendo if you live in Japan, the company’s home market. This 10-for-1 split should make Nintendo more accessible to smaller, individual investors — which, in turn, should help boost the price. A win-win for all involved.
Nintendo, a delightfully conservative company that hoards cash and shuns debt, also picked an excellent time to announce the split. The company’s cash cow console, Nintendo Switch, just entered its sixth year on the market and looks to be slowing down.
Of course, “slowing down” is relative.
Nintendo sold an astounding 28.2 million Switch consoles two years ago, 23 million last year, and projects 21 million for FY 2023.
But any year with more than 20 million consoles sold is a hugely successful one. Especially in the midst of a semiconductor shortage. In fact, competitors Sony and Microsoft rarely ever sell more than 20 million consoles in a given year.
Nintendo is so far out in front right now that, even in decline, it far outpaces its rivals.
The Power of Evergreens 🌲
If only every console could age as gracefully as Nintendo Switch. Even though hardware sales will slow down as it nears saturation, gamers are still scooping up Switch games by the bucketload.
It doesn’t hurt that Nintendo boasts a collection of intellectual property second only to Disney. Think about it: Fans know that every Nintendo console will have Mario, Luigi, Princess Peach, Bowser, Pokemon, Donkey Kong, Link and Zelda, Animal Crossing, Splatoon, et al. on it.
In recent months, first-party releases like Pokemon Brilliant Diamond / Shining Pearl (14.65 million copies sold), Pokemon Legends: Arceus (12.64 million), and Kirby and the Forgotten Land (2.1 million) posted eye-popping sales numbers.
All three look set to join Nintendo’s overflowing stable of evergreens (i.e. games that continue to sell briskly long after their release windows). Unlike Sony and Microsoft — who live and die with front-loaded sales from tentpole blockbusters — Nintendo possesses the rare ability to pump out games that keep selling year after year.
Even better, these Nintendo evergreens keep selling at full price. While rivals might slash the price of a three-year-old game by more than 50% to eke out a few more sales, Nintendo doesn’t budge from $60 and their games still fly off the shelves.
From a revenue and profit perspective, this is pretty great. (Not so much for my wallet, though, but I digress…)
I mean, check out these Switch evergreens:
Mario Kart 8 Deluxe (45.33 million)
Animal Crossing: New Horizons (38.64 million)
Super Smash Bros. Ultimate (28.17 million)
The Legend of Zelda: Breath of the Wild (26.55 million)
Super Mario Odyssey (23.5 million)
… and there’s a lot more, too. I’m just tired of typing them out.
Nintendo’s upcoming FY 2023 promises more of the same: Switch Sports (already out), Xenoblade Chronicles 3 (July), Splatoon 3 (September), Pokemon Scarlet / Violet (November), and maybe even the much-anticipated sequel to BOTW in the spring.
With the exception of Xenoblade (sorry), the others should keep selling steady numbers until whenever Nintendo decides to drop Switch 2.
💣 Can Nintendo Escape the Boom-Bust Cycle?
“The question of whether we will be able to just as smoothly transition from the Nintendo Switch to the next generation of hardware is a major concern for us,” CEO Shuntaro Furukawa acknowledged last week. “Based on our experiences with the Wii, Nintendo DS, and other hardware, it is very clear that one of the major obstacles is how to easily transition from one hardware to the next.”
Therein lies the rub.
Nintendo has a lamentable habit of following up its most successful consoles with head-scratching duds. For more than twenty years, the company has careened from the highest of highs to the lowest of lows (and back again) seemingly at random.
Just when everybody writes off Nintendo as yesterday’s news — like in the GameCube and Wii U eras — it roars back and proves the naysayers wrong with an out-of-nowhere phenomenon like Wii or Switch. Likewise, whenever Nintendo’s spot atop the gaming industry looks impregnable, the company fumbles it all away in embarrassing fashion.
Wii (101.6 million consoles sold) » Wii U (13.5 million)
Nintendo DS (154 million consoles sold) » Nintendo 3DS (75 million)
Wii U was a great system, but yikes…
But, Nintendo being Nintendo, it followed up the Wii U debacle with perhaps the company’s most profitable creation ever. Nintendo Switch is on pace to sell more than 20 million consoles for the fourth straight year and will likely become the first Nintendo system to sell more than 1 billion units of software.
It just prints money.
But we’ve been down this road before.
The question remains: Can Nintendo sustain the Switch’s success across future generations of hardware?
It may or may not be wishful thinking, but most expect Nintendo to either (1) release a more-powerful Switch 2 in the same form factor as the original, or (2) adopt a more iterative approach similar to iPhones and iPads. In the latter case, new games could be played across a variety of different Switch models — with some offering better performance or battery life improvements. Just like some iOS games can be played on numerous versions of iDevices.
Either way, Nintendo hopes to break the cycle and seamlessly transition its (massive) current user base to new models without a big crash.
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Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.