Analysts wonder if its 'Game Over' for Nintendo

CNN
Wednesday, January 29, 2014 - 11:10am

For decades, Nintendo has been among the world's leading producers of video games, best known for Super Mario Brothers and the wildly successful Wii console.

But business has not been good for the Japanese gaming company lately.

Its new Wii U system, has sold poorly.

That has some financial analysts calling for major change at Nintendo.

At the Super Potato Retro Gaming Center, fans of the classic Nintendo games can spend hours playing their old favorites.

Keita Furuyama remembers what it was like owning an early Nintendo console.

“When I first bought a Nintendo, I was the envy of my friends, they all wanted to come over to my house to play,” he said.

Since the launch of its Wii U in November 2012, Nintendo has sold more than 3.5 million units worldwide.

It originally said it expected to sell 9 million consoles in fiscal year 2013 but it last week, they revised that forecast to 2.8 million.

By contrast, Sony’s PlayStation four, launched in November, has already moved more than 4 million units.

And Microsoft’s latest offering the Xbox One, has sold 3 million since its launch in November.

Many gamers say, the Wii U can't compete with the graphics and titles offered by the competition.

“I just find Sony more attractive as a gaming platform, even when you play a game that is available on both consoles, the Sony version is more fun than Nintendo,” Furuyama told CNN.

Masaru Sugiyama, a gaming analyst for Goldman Sachs, which has cut their 12 month target price by 8% and downgraded the stock to a sell, agrees,

“A lot of people who are buying PlayStations and Xbox Ones are really dedicated hardcore gamers who are willing to spend large amounts of money to gaming. They spend more time and they care about the graphics and they care about the quality or the spec of the machine. However, people who conventionally play the Nintendo Wii games were families or casual gamers.”

But it appears the company's share of the market is shrinking. Even making it more affordable hasn't helped.

“The Wii U priced at 100 dollars below the competition the hardware specifications were below the Xbox One and PS4's so those populations also went for the PS4 and Xbox One, so Wii U was left with not many people left to buy,” Sugiyama told CNN.

The news is not all grim. Nintendo reportedly has 62 billion Yen in cash, that's over $600 million. sales of its handheld 3ds remain strong.

And, Sugiyama says, the company is working through several strategies that could give it a competitive edge. Like going after less developed markets.

Console companies around the world have not really tackled the emerging markets in the past two decades or so, maybe 3 for the reasons such as piracy or low discretionary spending. But all of these issues are getting solved.

Analysts say profits could also be boosted by developing mobile software and selling games online.

CNN: “Looking at the P/E ratio now, do you think that the stock is fairly valued and what are your expectations for the next 12-18 months?”

Sugiyama: “Our 12 month target price is 11,000 yen and this is based on a rather optimistic scenario, this is a company with a very big balance sheet of cash and also great content. At some point, there is a point where value of the stock should be appreciated but not at this moment.”

If they are able to get software companies make good games for them, and if they continue to make great games like Zelda and Mario, they might be able to keep my generation interested in their products.

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