What is causing the decline in Nintendo’s Stock Price?

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If you head here, you’ll be able to see exactly what the headline refers to.

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You can see the issue right away by looking at the charts. From late May onwards, Nintendo has lost around 25% of its stock market value. This is no mere drop in the ocean, its millions of dollars of worth. Before we delve into any of the reasons, let’s lay out the numbers here so we know exactly what’s being discussed($):

Current price: 40.33
Yearly high:
58.45
Yearly low:
39.06
Price six months ago:
49.98
Price one year ago:
39.83
Price two years ago:
17.78
Price five years ago:
14.09

Right away you can see the difference in the Nintendo Switch era and the Wii U era. The current stock price is over twice as high as it was the summer before the Nintendo Switch launch. Another interesting fact is that the current price that has investors so ‘worried’ is actually almost identical to the price this time last year. Coincidence? Never in the stock market. It would appear summer and E3 have direct links to the Nintendo stock price. Six months ago, at the start of 2018, the price was very high although it peaked in March, around the time of the reveal for the next Super Smash Bros title.

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The Nintendo Switch is currently performing very well. NPD has recently predicted that it will be this year’s top selling console in the United States of America. This year there is still a Mario title, Smash Bros and a new Pokemon title set to release. These should all put Nintendo’s investment prospects in very good standing. So why has this large drop occurred? What caused the drop in investor confidence?

  • Poor E3 showing? Nintendo didn’t have the strongest E3 this year. It lacked surprises and was rather tepid with only three first-party titles coming to Switch in the rest of 2018. Two of these games are Smash and Pokemon though and those franchises usually equal huge profit. Combine these franchises with Super Mario Party (Mario games tend to sell) and we can see that there is no reason for investors to be worried on a software front. Finally, the fact that the drop started weeks before the Nintendo E3 Direct also downplays this issue.
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  • The State of the Tokyo Stock Exchange? At the end of 2017, the Tokyo Stock Exchange celebrated its highest ever year-end level in 26 years. Analysts have predicted an even better showing in 2018 and while the Nikkei has dropped since the turn of the year, it is averaging higher than this time in 2017. So the market is actually improving showing that Nintendo’s decline is an outlier.

 

  • Nintendo’s sales target too ambitious? Nintendo has set out to sell 20 million hardware units of the Nintendo Switch this year. This is a lofty goal that not many console manufacturers reach. Investors could doubt the Switch’s chance of hitting this goal and therefore not want to support the company. This is especially true of Western investors. In the Japanese market, investors can put their faith in Japanese titles like Pokemon driving Switch sales. However due to the lack of third party support in the West then Western investors may not see the 20 million as a viable goal. However the addition of Fortnite Battle Royale and the recent Crash Bandicoot N Sane Trilogy, Rocket League and Minecraft releases show that the Switch is attracting popular, western developed third party titles.

 

  • Was Nintendo’s valuation inflated? Over the last year, Nintendo has hit record highs that it hadn’t seen since the Wii era. The Wii era was totally unprecedented. The success of the console was insane and it really captured the attention of the entertainment market. Investors may have perceived Nintendo’s recent highs as the highest the stock would be worth in the foreseeable future so they’ve taken the opportunity to cash in shares before the valuation drops.
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  • Have sales been weak in comparison to Year one? NPD’s prediction that the Switch will be the highest selling console cannot be ignored. However, even if the Switch is successful in 2018 so far it will be very difficult to rival 2017. The launch sales in 2017 were very impressive and were boosted by the release of a brand new Legend of Zelda and Super Mario titles, both of which were hugely praised across the industry. Therefore it is easy to see why 2018 might be underwhelming in comparison. Without a single AAA first party exclusive, especially not a title expected to sell 5 million + units like Splatoon 2, Mario Kart 8 Deluxe, Breath of the Wild or Odyssey, the sales potential so far this year hasn’t matched 2017.

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The final verdict?

The final two are the most practical answers. Investors are not gamers, they follow the money. IF they have seen their investment in Nintendo recently as profitable after only a short period then they’ll cut and run and it’s evident that many have. It’s also true that without a tentpole release since October 2017 then investors don’t see Nintendo’s targets as feasible despite many 2017 titles having evergreen sales potential.

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So Nintendo isn’t in trouble?

Not even a little. With titles that could sell 10 million+ units such as Pokemon and Smash en route combined with their reiteration that there are more 2018 games yet to be revealed then the next 5/6 months should be very impressive for Nintendo. As third party support continues to swell through titles like Fortnite, Paladins and Warframe then more gamers will be persuaded to join Nintendo’s ranks. If you’re a gamer then 2018 on Nintendo Switch is very bright. If you’re an investor then doubling your money in less than two years was an amazing result that was unlikely to improve.

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