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The launch of the next console in 2025 will most likely benefit Nintendo over the following three years, as it gradually gains traction.
Risks
- A flop of the new console due to poor reception or high price.
- Emergence of new portable consoles from Sony and Microsoft (Xbox).
- Fatigue with key franchises: Mario, Zelda, Metroid... Highlighting the need for innovation.
Assumptions
- Pokémon (33% owned by Nintendo) remains at the peak of its popularity, with new games consistently being released and Pokémon cards selling like hotcakes.
- MOAT: Family-friendly games, platformers, a wide selection of indie games, unique gameplay, and portability that cannot be found elsewhere.
- Diversification:
- Cinema: Success of The Super Mario Bros. Movie with a sequel expected in 2026 and a live-action Zelda movie anticipated by the end of the decade.
- Theme Parks: Locations in Osaka, Hollywood, Orlando (opening May 2025), and Singapore (TBA).
- Mobile Market Expansion: Increasing presence in the mobile gaming market. Nintendo's franchises and universes seem perfectly suited for this platform, in my opinion.
- Reputation:
- Games are released polished and nearly bug-free.
- No download times for physical copies, as the game is pre-installed on the cartridge.
- Innovation takes precedence over graphical fidelity.
Valuation
- Discount rate of 7% in a dynamic market, which I believe will remain so in the coming years.
- A revenue growth prediction of 4%, which I find relatively conservative.
- A margin of 23%, corresponding to the current margin (November 2024).
- An estimated future P/E ratio of 30.
The company appears to be overvalued in its current state, although I see significant potential in the coming years with the launch of the new console.
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Disclaimer
The user Serpentaire has a position in TSE:7974. Simply Wall St has no position in any of the companies mentioned. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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