$NTDOY DD – Nintendo Is An Actual Money Printer & The Future Disney of Japan via /r/wallstreetbets #stocks #wallstreetbets #investing

Nintendo is ready to take you to tendie town.

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Disclaimer: I am not a hedgie, and this post does not include 30 pages of science or massive linkedin pictures of Nintendo’s executives….okay, I’ll include one:

This is the guy responsible for taking you to tendie heaven. Do you really want to bet against him?

  • Pokemon, The Legend of Zelda, Nintendo Switch Sports and several other popular titles expected this year are actual money printers
  • Super Nintendo World theme parks + Cinema add substantial revenue growth opportunities
  • Nintendo has paid variable semi-annual dividends since 1985–hold in taxable account if you want to reclaim a portion of the foreign dividend tax as a tax credit
  • Melvin Capital took advantage of low trading volume back in 2018 in a short position on the stock contributing to a 27% decrease in the stock price from its May 2018 peak…Figure this is worth mentioning.

My Position:

800 NTDOY shares w/adj. cost basis of $62 (incl. dividends)

Note that NTDOY is an ADR that represents 1/8 of 1 ordinary share of Nintendo. There is an ADR with a 1:1 ratio but NTDOY has much more daily trading volume. Relating to stock price, I will only refer to NTDOY for the entirety of this analysis.

What does NTDOY do? – Nintendo develops, manufactures, and sells video game software and hardware globally. The Company owns some of the world’s most successful video game franchises including Super Mario, The Legend of Zelda, and Fire Emblem (also Metroid can we get an actual MP4 update ffs) and has substantial ownership of and rights to other intellectual property including Pokemon and Sega.

How Does NTDOY make money? – Nintendo generates revenue from the sale of physical and digital video games (incl. mobile) and consoles as well as from minority ownership of other popular franchises and licensing fees from toy, fashion brands, and other merchandise sales. The Company has begun diversifying its revenue streams with a new focus on theme parks and increased focus on cinema.

Recent Developments

Mar 2021: Super Nintendo World – Nintendo debuts its first ever theme park “Super Nintendo World” at Universal Studios in Osaka, Japan. The Company plans to expand the park by 2024 and to open additional parks at the Universal Studios locations in Los Angeles, California (2022, possibly 2023) and Orlando, Florida (2025).

Super Nintendo World in Osaka, Japan

  • The Osaka, Japan location currently has two primary attractions:
    • Mario Kart: Koopa’s Challenge – Designed for adults and children. Has been described as being more engaging and visually intense than any other existing theme park.
    • Yoshi’s Adventure – Specific focus on families and children. A casual ride that encircles Super Nintendo World, providing a view of all elements of the park.
  • Other park features:
    • General and express passes available which provide priority for attractions with set lengths of time
    • Treasure hunts encourage multiple visits and/or purchases of express passes
    • Nintendo-themed restaurants, cafes, and souvenir shops
  • Parks are specifically designed for significant technological advancements and expansions with plans for a Donkey Kong add-on and rumors of Zelda and Metroid add-ons
  • There is ample opportunity to build additional parks considering the global appeal of Nintendo’s diverse intellectual property and considerable amount of potential high traffic tourist locations.
  • Outside of potential supply chain issues, the Company should have no problem building new parks considering that Nintendo’s cash position currently represents 61% of its balance sheet.

Dec 2022: Super Mario Bros Movie – Originally announced in 2018, Nintendo plans to release a new animated Super Mario Bros movie later this year.

  • The cast comprises crowd favorites in the entertainment industry including:
    • Chris Pratt (Parks and Rec, Guardians of the Galaxy) portraying Mario
    • Anna Taylor-Joy (The Queen’s Gambit, Peaky Blinders)
    • Charlie Day (It’s Always Sunny in Philadelphia) as Luigi
    • Jack Black (Jumanji: The Next Level, Tenacious D) as Bowser.

Main cast for the upcoming Super Mario Bros. Apparently Chris Pratt will not be using a Mario accent

Late 2022 / Early 2023: Nintendo Switch 2 – A successor to the original Nintendo Switch and the Nintendo Switch OLED is expected to debut by end of this year or early next year, depending on supply chain constraints. While there is currently no confirmed information available, there are numerous rumors regarding the specs and features that the Nintendo Switch 2 will exhibit.

While Nintendo is criticized for frequently contradicting industry trends as well as inferior system performance compared to its peers, the Company has a long proven track record of creating industry-changing video game experiences with innovative consoles including the Game Boy series, the Nintendo DS, the Wii, and the Nintendo Switch. In fact, data for the highest selling consoles ever suggests that Nintendo is to date, the most successful video game console maker in the world:

Source: https://en.wikipedia.org/wiki/List_of_best-selling_game_consoles

Biggest VG Releases for 2022 based on historical series unit sales:

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  • If historical sales are any indicator, Pokemon and Nintendo Switch Sports should sell quite well. Snippet is from the top 50 VG franchises infographic provided by top 50 VG franchises infographic provided by TitleMax
  • Despite a substantially smaller video game library than PlayStation and Xbox, Nintendo has the most titles in Metacritic’s top twenty video games of all time list:

Nintendo titles highlighted in red

Historical & Projected Financials

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Assumptions

  • Estimates for Revenue, EBITDA, and Net Income from CFRA Equity Research are referenced
  • Expectation of a 8% decrease in sales for FY 2022 (ending March 31st) compared to FY 2021 which was driven by strong console unit sales and Animal Crossing: New Horizons during the global economic shut down.
  • Forecasting a 10% increase for FY 2023 sales given strong expected sales of popular games including successors to a few of the best selling video game titles of all time such as Pokemon: Legends Arceus, Nintendo Switch Sports, and The Legend of Zelda: Breath of the Wild 2, as well as increased Super Nintendo World ticket sales.
  • Given a potential delay relating to the ongoing semiconductor chip shortage, this forecast does not include estimated sales of the Nintendo Switch 2. In an upside case where the Switch 2 is released by March 31, 2023, it is reasonable to expect 15% sales growth for FY 2023.
  • Slightly lower operating and net profit margins resulting from increased advertisement spend and R&D, offset by cost efficiency of higher software vs hardware sales mix.
  • Dividend Payout of 40% of Net Income at low end of payout ratio for the past five years.
METRIC FY 2021 Est. FY 2022 Est. FY 2023
EV/Revenue 2.7 2.9 2.6
EV/EBITDA 7.2 8.2 7.6
Debt/EBITDA No Debt No Debt No Debt
P/E 13.3 15.7 14.3
EV/FCF 8.2 10.9 9.9

Assumptions

  • Estimates for Revenue, EBITDA, Net Income, and FCF are shown in the above Financial Analysis
  • No debt issuance (no need when 61% of balance sheet is cash)
  • Enterprise Value assumes no change in stock price

NOTE: Nintendo’s comps in actuality are PlayStation, Xbox, PC, mobile, and VR. However, for purposes of this stock analysis, it is not possible to conduct a comparable analysis specific to console, PC, or mobile, as well as video game unit sales (okay maybe it’s possible but fuck that, I’m not doing all that work for you degens). That stated, I instead compare NTDOY to a select few companies that savvy, totally not retarded investors such as yourselves would be likely to compare NTDOY to including ATVI, EA, SONY, RBLX, and given certain parallels relating to its incredible brand loyalty and IP expansion strategy….DIS.

Furthermore, I am leaving out certain video game stocks including TTWO, ZNGA, and several Korean video game centered stocks based on their significantly smaller size in terms of market cap and market share as well as relevant Chinese companies because apparently nobody wants anything to do with Chinese stocks (I don’t blame you). This makes the following analysis wide open to counterpoints so if you have wildly differing opinions, feel free to shove them up your ass, find the nearest cliff, and fuck yourself comment below.

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Note the substantial discount that NTDOY trades at related to all multiples aside from P/B (which is quite close). RBLX’s multiples are excluded from the means shown above because they’re ridiculous and would result in excessive skew for the means. We’ll now apply a blended multiples valuation to calculate a PT.

Let’s use EV/Rev, EV/EBITDA, P/B, and P/E as the key metrics for our multiples valuation. We’ll average the comps based multiples (excluding RBLX) and 5-year historical averages for NTDOY for a blended approach. This actually results in a lower PT compared to the PT resulting from relying solely on NTDOY’s historical averages.

VALUATION METHOD Blended Price Target Applied Weighting
EV/Rev (3.8x avg) $86 25%
EV/EBITDA (13.7x avg) $103 25%
P/B (3.5x avg) $87 25%
P/E (21.6x avg) $96 25%
FINAL PRICE TARGET $93 100%

This PT provides a potential 48% upside when accounting for the expected 2.3% forward dividend yield. Note that this is strictly a 1-year PT since the valuation will surely change substantially over time as Nintendo opens new theme parks and continues to capitalize on its IP expansion strategy. That said, this is a very long-term hold for me as I firmly believe that Nintendo has yet to tap into its full potential which will likely take many years.

Whereas the development of Metroid Prime 4 will apparently take decades…

  • Continued Semiconductor Chip Shortage (Moderate) – Could result in lower than expected production of existing Nintendo Switch consoles or temporary delay (note: not cancellations) of major VG releases, Super Nintendo World openings, or the Nintendo Switch 2.
  • Execution Risk on IP Expansion Strategy (Low) – Poor sales from the upcoming Super Mario Bros movie could discourage the Company from furthering its push into cinema, resulting in limited lost opportunity relating to Nintendo’s long term growth.
  • Low Trading Volume / Short Selling Risk (Moderately High) – Average daily trading volume is relatively low, ranging from 300k to 400k shares. Stock price performance may be hindered by rebalancing of sizable funds (wtf Cathie Wood) or heavy short selling volume (fkn Melvin). Note that this risk does not preclude the opposite from occurring where low volume or short covering pushes the stock price upward.
  • Pokemon, The Legend of Zelda, Nintendo Switch Sports and several other popular titles expected this year are actual money printers
  • Super Nintendo World theme parks + Cinema add substantial long-term growth opportunities
  • In recent years, annualized dividend yields have been around 2%. Nintendo has paid variable semi-annual dividends since 1985–hold in taxable account if you want to reclaim a portion of the foreign dividend tax as a tax credit
  • Remember the DK Rap?

Sources:

Submitted February 22, 2022 at 03:01PM by loose-ventures
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