Nintendo shares buoyant – thanks to Coronavirus

The global economy may be set to enter a protracted recession, where only the most sanguine reckon on a “V-shaped” recovery. But these times of pandemic and crisis have been good for the bottom lines of some firms, not least those in the electronics sector.

Anyone who bought shares in Zoom Video, the video-conferencing app, in January when they were worth just $70 a share will have turned a healthy profit when those rose to around $150 this month. The market value of the firm is now around $42 billion.

Another firm taking advantage of the stay-at-home rules and social distancing is Japan-based Nintendo. The company announced last week that its operating profits for this fiscal year, which ended in March, were up 41 percent compared to the previous fiscal year and its highest in nine years, worth 352 billion yen (around $3.2 billion).

Sales overall were up 9 percent compared to the previous fiscal year, worth around 1.3 trillion yen, slightly higher than its projections made last year. Moreover, its latest quarter profits, in the three months to March, were up a third compared to the previous quarter.

Nintendo shares set to flourish

Not surprisingly, Nintendo (NTDOY) stocks were trading at $54.28 on May 7, up by around 1.5 percent since the end 2019, whereas on average other Nikkei stocks declined 14.6 percent.

Alexander Windsor-Clive, an analyst for Lindsell Train Investment Trust, told Market watch that he believed Nintendo “will continue to flourish in the long term, driven both by trends in the industry and the enduring resonance of its ubiquitous intellectual property, which has entertained quite literally hundreds of millions of people across the world over a multi-decade period”.

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Much of Nintendo’s recent success has been put down to the popularity of its recently-launched “Animal Crossing: New Horizons,” a video game released on March 20 and which sold 13 million copies in the first six weeks. It is now the fastest-selling game for Nintendo’s Switch, a handheld device launched in 2017.

Digital versus in store sales

In the first three months of the year, almost half of Nintendo’s games were sold digitally, as downloads onto devices, the highest share of digital sales in the company’s history. Sony, its video-game competitor, also boasted near record-high digital sales. In March, US video games sales rose to their highest level since 2008.

But there are concerns: A report by the Financial Times contend that Nintendo executives worry that changes to business practices because of the pandemic will affect the company’s practices in the long run.

For instance, while many of the firm’s game and software developers have worked from home in recent months, as Japan introduced a shutdown-lite, executives warn that if remote working was to be extended then it will impact how developers collaborate and would limit the firm’s ability to release new game titles.

Rival Sony Corp for instance has been forced to delay the release of several major titles on its PlayStation 4 device.

Moreover, digital sales can be exaggerated in importance over in store sales. Coronavirus-related problems with supply chains in China and Vietnam forced Nintendo to briefly suspend shipments of Switch devices to Japan last month. But the new device and its portable version, the Switch Lite, sold 21 million units in the last fiscal year.

Over all, Nintendo’s hardware sales are up 24 percent year-on-year, much higher than the company’s own forecasts.

Nintendo rivals not sleeping

Rivals Sony and Microsoft are planning to launch their fifth-generation consoles – PlayStation 5 and Xbox Series X, respectively – later in 2021, which has produced some lag in offering new titles for their current consoles.

But there are concerns that, despite impressive profits this year, Nintendo could fall behind the rest of the video game giants if it fails to adapt to the times. On the other hand, Nintendo is expected to launch Switch 2 in 2021.

Yet ValueAct Capital Partners, a San Francisco-based firm that upped its stake in Nintendo to $1.1 billion in April, wants it to broaden its appeal, including focusing on software for mobile devices, rather than its own consoles.