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Nintendo (OTC: NTDOY), maker of the Switch video game console, has recently started investing in other forms of entertainment for its iconic characters and stories. I like it Disney (NYSE: DIS) has done with Marvel and Star WarsNintendo is building theme parks, creating mobile games, and collaborating on video content for its Mario, Zelda, and Donkey Kong franchises. By diversifying into new lines of business, the company can even out the feast or famine fluctuations of its core console business.
Consoles alone cannot carry Nintendo’s future. Image source: Getty Images.
Trusting the Switch, for now
As of now, most of Nintendo’s revenue is related to the Switch console. Last quarter, 96% of its revenue came from Switch and associated games. The Switch is a huge success and has been the number one console in the US for 22 months, but it can be risky if a business depends on a product to be successful, especially if it is hardware-based.
The competition is coming too. New Xbox and Playstation consoles have been released for this holiday season, which may put some gamers away from buying a Nintendo product. The company has responded with the new Switch Lite and the rumored Switch Pro (believed to be released in 2021), so it will be interesting to see if Nintendo can maintain the top position in the console rankings. Xbox and Playstation are targeting adult gamers more than Nintendo’s family-oriented content, so investors shouldn’t worry too much about new consoles, but it will be interesting to see if the new competition pushes sales of the Switch away during the holiday season. .
The Switch is important to Nintendo and investors should watch closely. But it is not the only way the company will grow in the future.
Expanding your entertainment horizons
Right now, Nintendo makes between 5% and 10% of revenue from everything non-Switch-related, depending on the quarter or year being analyzed. Nintendo management, traditionally secretive about future plans, has hinted that it wants to shift its dependence on a single console in the future. Here are some things that we know will come:
- Theme parks. Nintendo has partnered with Universal to build Super Nintendo World parks in Japan, Florida, California and Singapore. I like it Star Wars: Galaxy’s Edge At Disney parks, Super Nintendo World is intended to be a 100% immersive experience in which guests feel as if they are in one of Nintendo’s games. Construction began on the Japan park in 2017, and it is supposed to open in 2021, depending on what happens with COVID-19.
- Video entertainment. With rising streaming budgets and modern animation technology, Nintendo has started partnering / licensing its intellectual property for film and television production. A Super Mario Bros. film from the creators of Despicable me It’s supposed to be out in 2022. It will be animated (unlike the 1993 version of Trainwreck) and aimed at a family audience. A The legend of Zelda The movie is rumored to be coming to Netflix, though no material has been announced so far. Nintendo President Shuntaro Furukawa said that in the future visual content will not be limited to movies and that Nintendo’s main goal is to invest in entertainment to attract new fans to its content.
- Hybrid physical and digital games. Movies and theme parks may be Nintendo’s biggest opportunity, but investors shouldn’t forget physical toys and games. For example, the company just launched Mario Kart: Home Circuit, where users not only compete with cars and characters on a screen, but also with a physical race track.
One downside for Nintendo has been its struggle to succeed with mobile games. The company announced that it was withdrawing from the smartphone market, which likely disappointed many investors. However, stopping investments in smartphone games shouldn’t worry anyone looking to hold shares in Nintendo, as it is only a small part of the company’s business. Not everything can be a home run, and a stumble here shouldn’t affect the company’s other plans for non-gaming assets going forward.
It should also be noted that Nintendo has a 20% stake in Niantic, the innovative AR gaming company behind the successful app. Pokemon go, so it is not totally excluded from the smartphone industry.
Looking ahead to 10 years
A decade from now, investors may see Nintendo from a completely different perspective. With its undisputed intellectual property, similar to Disney’s, it would not be surprising if the company had four different income segments that generate substantial returns as investments in non-gaming assets pay off. This will separate Nintendo from the console cycle, ensuring that each new product is not do-or-die for the business. Investors should look for steady and growing profits as an indicator that this strategy works in the future.
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