Nintendo Co. – from “Moat Superstar” to Net-Net ?

There was an interesting article in Business Week about Nintendo, which is expected to book its first lost since a long long time.

One of the quotes were:

It’s hard to say whether Nintendo can regain its footing, says Melissa Otto, director of active equity at TIAA-CREF, the manager of retirement accounts for employees of nonprofit institutions. The company’s stock has fallen so far—shares reached a 52-week low on Jan. 27—that it’s approaching the company’s cash value, she says. “They have a fantastic track record,” Otto says. “They have a wonderful brand. But the question is: Does the consumer care now?”

A quick look into the balance sheet shows:

The company currently trades close to book value (P/B 1.2). Net current assets are only slightly lower, no goodwill, no financial debt.

Cash and marketable securities were around 6000 Yen per share per end of year 2011. There seems to have been a certain cash burn in the first 9 months of FY 2011, this is somthing to watch. However this could also be an FX conversion effect if the cash was held for instance in EUR.

Interestingly for the 9 Month 2011, tha largest part of the announced losses were currency losses.

The stock chart in YEN looks quite bad, we are back at 1989 levels:

Shareholders:

The shares shares are widely held, no dominating shareholder. 10% are treasury shares. I wonder wether this would be a nice target for some shareholder activism….

Analyst sentiment is bad (which is good).

For the time being, I have no idea how to value Nintendo, but it is definitely something to watch. The “Intangible” value of the game franchises (Mario, Pokemon etc.) could be huge, however there are many well known headwinds like Mobile phone games etc.

If Nintendo again manages to reinvent itself like they did with the WII, then the upside could be huge. If they fail, at least they will not go bankrupt any time soon.

In any case, Nintendo is an interesting example how a “Moat” or “Gillette Razorblade” business model can dissappear through technological change pretty quickly, at least in the consumer electronics area. So watch out Apple.

4 comments

  • #perlenfischer,

    absolutely correct. Howver, the gaming know how of Nintendo is definitely not a “fad”. The hardware part is indeed questionable.

    mmi

  • possible Value Traps:

    Cyclical and/or Single Product
    […]
    • Fad does not equal sustainable value (Coleco,Salton, Renewable Energy)
    […]

    Hindsight Drives Perceived Value
    • Technological obsolescence (Minicomputers,Eastman Kodak, Video Rental)
    […]

    Cheap on Management’s Metric
    […]
    • Ignore restructuring charges at your own peril(Eastman Kodak)

    published by Jim Chanos
    introduced by memyselfandi007 11/25/2011 🙂

    Possibly some parts to consider.

  • Pingback: I think I’m Turning Japanese . . . (I really think so)* « valuestockinquisition

  • Thanks for that. Not on my radar. I am going to have to start broadening my screens to Japan – I feel there must be a far higher proportion of great value opportunities there than in many other markets.
    My daugter loves her Nintendo DS. Must do some closer work on this one.

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