Nintendo Is an Overlooked Metaverse Play. It’s Time to Buy the Stock.

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Videogames have enjoyed a pandemic-era renaissance, but shares of the industry’s core player have lagged behind. Nintendo‘s
US depository shares are down 29% in 2021.

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The Japanese videogame giant (ticker: NTDOY) is still making games that are loved by its fans. But investors have spent much of the year looking for companies that make big promises about the “metaverse” — the idea of ​​virtual worlds that enable social interaction and commerce. This has given huge gains to stocks like Roblox (RBLX) and Nvidia (NVDA) this year. Roblox, which makes tools for gamers to build online worlds, mentioned the “metaverse” 17 times at a recent investor-day meeting.

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Sure enough, Roblox is up 160% since it went public via direct listing in March. The company, which is facing annual losses for the year, is trading at 21 times next year’s sales. Nintendo? Only 3.5 times.

Meanwhile, Nintendo remains as conservative as ever about its ambitions. In its 48-page earnings presentation last month, it did not mention Metaverse. Despite the fact that its breakout pandemic hit, Animal Crossing: New Horizons, is only a mini metaverse.

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The game features a virtual currency, costumes, and online that allow gamers to interact with friends on their personally curated tropical islands. It has sold around 35 million copies since its release in March 2020.

None of the future Metaverse success is in Nintendo’s numbers. For its fiscal year 2022, which ends in March, Wall Street expects the company to earn $3.74 per U.S. depository share, down from $4.64 in fiscal ’21. Sales are expected to fall from $16.2 billion to $14.5 billion. Supply-chain crises and semiconductor shortages are partly to blame for the projected decline, which will happen for the first time in six years.

Wedbush Securities analyst Michael Pachter says he doesn’t see a lull in demand for the company’s Switch console, which has sold nearly 93 million units since the start of 2017. The device allows gamers to play in both handheld mode and via television. In October, Nintendo launched a higher-priced model with a sharp OLED screen.

“You’re seeing sales decline, and they’re not going to hit their initial forecast for units for the Switch this year, but that’s purely supply chain,” Pachter says. There’s still a strong market for Switch, he adds. “Look for a Switch on eBay”,
Their price is much higher than retail. ,

Pachter upgraded Nintendo’s shares from neutral to outperform in late October. He says a strong pipeline of recent games and releases could get consumers and investors excited about Nintendo again. Next year, Nintendo has its strongest release slate in years, including its new installments legend of Zelda And pokemon Franchisee.

The new games could generate renewed momentum for the Switch, helping Nintendo surpass Wall Street’s bleak forecasts.

Recently at $57, Nintendo’s US-listed stock trades at just 15 times earnings estimates for the next 12 months. This is about 23 times less than the five-year average.

After years of grumbling from Wall Street, Nintendo is finally taking steps to give investors—and gamers—what they want. Mario & Friends, voiced by Chris Pratt and a star-studded supporting cast, will hit the big screen next year. Meanwhile, Comcast (CMCSA) is planning a Mario-themed expansion of its US theme parks.

Most important, Nintendo is starting to make money through its subscription service, Nintendo Switch Online, in a favorite variety of more recurring fashion-investors.

“The switch has become a phenomenon that is affecting so many different demographics,” says Mario Stefanidis, research vice president at Roundhill Investments. “Nintendo has never really been better.”

Nintendo currently makes up about 0.5% of the Roundhill Ball Metaverse exchange-traded fund (META). The leading ETFs are Nvidia and Roblox, which comprise 11.2% and 9.7% of its portfolio, respectively.

Nintendo has earned some of the skepticism shown by investors. Compared to any other videogame giant, the company has been slow to adopt mobile and free-to-play games, as well as online play and esports.

That means Nintendo is still missing out on a big opportunity. Nick Grouse, an analyst at Kathy Woods Arch Invest, estimates that the global videogame business will reach $200 billion in 2021, with mobile gaming accounting for about half of that figure.

So, Nintendo still has a chance to win in the mobile world.

“You have hundreds of millions of people over 20 years who introduce themselves to characters who are absolute masters of Nintendo,” Grouse says. “It’s a tremendous value, especially as we continue to spend more time online and move into these virtual worlds. That’s where I think Nintendo will start to differentiate itself from other game publishers.” “

write to Connor Smith at [email protected]

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