Is Nintendo Stock a Buy?

Nintendo (OTCMKTS:NTDOY) is arguably the most successful video game console maker of all time. When the Nintendo Entertainment System (NES) was released in July 1983, it revived a dying industry and ignited the modern console wars.

Now with nearly 90 million Switch consoles sold worldwide, the company has produced half of the top 10 highest-selling consoles ever. So, does all that success make Nintendo stock a buy?

Rare Nintendo games have extremely high resale rates on the secondary market. In 2021 alone, three world records were set for the most expensive video game sale.

The Legend of Zelda for NES sold for $870,000, Super Mario 64 for Nintendo 64 sold at auction for $1.56 million three days later. And on August 6, Super Mario Bros for Nintendo sold for $2 million. However, none of those aftermarket profits went to Nintendo, which is a $59 billion company.

Both Sony and Microsoft also have sought-after consoles in the current generation. Not only that, but companies like Facebook, Google, and Apple are all moving their way into the gaming market.

The Storied History Of Nintendo 

Nintendo is a video game and consumer electronics company originally founded in 1889 in Kyoto, Japan. It initially produced handmade playing cards.

By the 1970s it had become a publicly traded company. Within a decade or so, it gained worldwide acclaim for its games and console. This brought gaming from the public arcade into homes.

The release of the SNES in 1990 was an upgrade from 8-bit to 16-bit gaming to compete with rival Sega’s Genesis console. Soon, Nintendo was competing alongside the Sony PlayStation and Microsoft Xbox as one of the three major home consoles. It also has popular mobile systems, like the Game Boy and 3DS.

Nintendo’s IP spans a lot of popular gaming franchises, including Mario Bros, Legend of Zelda, Pokémon, and Animal Crossing. It also has several mobile games for Android and iOS, although it’s more focused on its home consoles than the mobile market. This makes the company unique in what’s now a mobile-first industry.

Is Nintendo Publicly Traded?

Nintendo is publicly traded in Japan, where it is headquartered. It’s listed on the Tokyo Stock Exchange with the ticker 7974:JP. In the United States, it’s traded as an ADR on OTC markets under the tickers NTDOY and NTDOF. ADRs are a little different than stocks in that they don’t often have shareholder voting rights.

The former (NTDOY) represents 1/8 of a Nintendo share, while the latter (NTDOF) represents one full share. 

If you’re looking to invest in Nintendo, you can do so either through an OTC exchange or through a brokerage firm that’s able to invest in international stocks. Be sure to fully understand the tax implications of investing in an ADR or foreign stocks, as you could be liable for taxes in both the U.S. and Japan.

Nintendo Financial Outlook

Because it’s a Japanese company, Nintendo’s earnings reports are in yen, and we’ll use an exchange rate of 1 JPY to $0.0088 USD when quoting monetary figures in this article to make things easier. The company’s fiscal year 2021 ended with $5.993 billion in profits from $15.52 billion in revenue.

That fiscal year started in March 2020 when the pandemic crash hit globally and caused chaos for most companies. This makes Nintendo’s 34.4 percent sales growth and 88.4 percent profit growth from the full pre-pandemic year even more impressive.

Moving forward, the company’s fiscal year 2022 forecast is for “only” $3 billion in profit from $14 billion in revenue. That’s a dip from 2021 but still not as low as 2020’s fiscal year.

Management attributes this dip to supply chain issues, but its latest console is also little more than a fresh screen on the same Nintendo Switch from 2017.

Is Nintendo Stock a Buy?

Nintendo is largely rated as neutral by analysts yet it pays a healthy bi-annual dividend. The most recent of which was $1.593 per share on NTDOY in July with the next expected in December. It also has an aggressive stock repurchase plan and $8.4 billion in cash on hand.

The release of the OLED Switch is expected to perk console sales as the company continues competing against the PlayStation 5 and Xbox Series X and S from Sony and Microsoft, respectively. Both consoles were released in 2020 and have significantly better hardware (albeit for a higher price tag).

Of course, the $350 console sold out in stores almost instantly, and resale prices on eBay are already going up from $500 to insane highs. But Nintendo won’t get any of those profits, highlighting a risk to the company.

Nintendo Relevancy In Question

Nintendo is a long-standing video game company and proved the value of its IP over the past 40 years. However, it could lose relevancy to streaming services from the likes of Google and Apple looking to compete with traditional console makers.

And while its products sometimes sell for more than their weight in gold on the secondary market, these profits are kept by the party reselling the console, not Nintendo. It’s also unclear if an OLED screen and minimal upgrades are enough to drive sales.

The Switch console is also struggling hard with Joy-Con drift, which plagues its latest system. Mario’s days could be numbered.

The Bottom Line: Is Nintendo Stock a Buy?

Nintendo is a long-standing video game company that owns some of the industry’s most iconic video game IP. That helps the Japanese company drive annual profits into the billions. Historically, Nintendo has been prudent with its money, holding $8.4 billion in cash.

However, the company’s fiscal year 2022 outlook isn’t as rosy as the previous year, it’s still an industry titan. Its distribution channels are massive, and there’s no lack of demand for its first-party titles.

Still, lack of third-party support and a lackluster showing on mobile (outside Pokemon Go, developed with partner Niantic) could hold the company back in the short term.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.