Yes, that is correct. I think Nintendo will decline in revenue YoY slightly despite its console cycle extension. The continuing margin expansion, however, causes OP to rebound despite revenue potentially slowing down.
Over next two years your forecasts indicate no profit growth.
So it’s not for “growth investors”
but probably for “value investors” who are looking at this and saying why is this game stock so much cheaper than other game stocks, despite (1) such amazing best in class IP library (2) so much cash (3) so much optionality.
So it comes down to investment style. Does that make sense?
Investors chasing 'growth' would likely want to have been invested in Nintendo in the past ~4-5 years. The company is not in the high-growth phase of the Switch life-cycle, but I still think a mix of growth/value (I don't like bucketing investors usually) would prefer Nintendo here, not just for cash/optionality/IP but because digitization is not baked into OP/EPS multiples.
Thanks again. Really nice to see your willingness to discuss openly while sharing forecasts. Brilliant. Something that we can look back and compare notes a few years down the line.
Can I ask 2 more Qs -
Q1: Is digitization baked into your own OP numbers?
fwiw - It is baked into my forecasts btw. And I have the earnings peak this year and then declining. Quite nice to see your 3/21 forecasts of Yen 723b of OP (am at Y592b, lowered it from Y612b recently). Your est of c. Y700b for this year and next two is c. 30% higher than cons of c. Y550b. So its quite possible your forecasts are for much higher digital %.
Q2: What do you think N management will guide for next FY? Not that that matters for longer-term investors...but I know it does matter to a lot of others that are not necessarily “long-term” (have been answering that question for nearly 2 decades now).
Thanks for the questions. Yes, increasing digitization (expressed in dig. rev. as % of total and SW rev.) is the main driver behind my OP forecast, so I would consider revising forecasts if Nintendo starts slowing their digital progress in multiple quarters.
Not sure on management guidance to be honest. I have been largely ignoring it because they are so detached from reality, but they are useful as a barometer for gauging management sentiment. I think sentiment has been improving amongst management after a strong 2020, so might see continued aggressive guidance (for their standards).
Nice write up addressing key points.
Yours truly is a BUYer. Not a super bull anymore though.
Your earnings table is showing OP at ¥723b for 3/21 and then declining slowly to ¥688b and then ¥720b in 3/22 and 3/23 resp.
Am I reading it correctly?
Yes, that is correct. I think Nintendo will decline in revenue YoY slightly despite its console cycle extension. The continuing margin expansion, however, causes OP to rebound despite revenue potentially slowing down.
Great.
Over next two years your forecasts indicate no profit growth.
So it’s not for “growth investors”
but probably for “value investors” who are looking at this and saying why is this game stock so much cheaper than other game stocks, despite (1) such amazing best in class IP library (2) so much cash (3) so much optionality.
So it comes down to investment style. Does that make sense?
Regards
Investors chasing 'growth' would likely want to have been invested in Nintendo in the past ~4-5 years. The company is not in the high-growth phase of the Switch life-cycle, but I still think a mix of growth/value (I don't like bucketing investors usually) would prefer Nintendo here, not just for cash/optionality/IP but because digitization is not baked into OP/EPS multiples.
Thanks again. Really nice to see your willingness to discuss openly while sharing forecasts. Brilliant. Something that we can look back and compare notes a few years down the line.
Can I ask 2 more Qs -
Q1: Is digitization baked into your own OP numbers?
fwiw - It is baked into my forecasts btw. And I have the earnings peak this year and then declining. Quite nice to see your 3/21 forecasts of Yen 723b of OP (am at Y592b, lowered it from Y612b recently). Your est of c. Y700b for this year and next two is c. 30% higher than cons of c. Y550b. So its quite possible your forecasts are for much higher digital %.
Q2: What do you think N management will guide for next FY? Not that that matters for longer-term investors...but I know it does matter to a lot of others that are not necessarily “long-term” (have been answering that question for nearly 2 decades now).
Regards
Thanks for the questions. Yes, increasing digitization (expressed in dig. rev. as % of total and SW rev.) is the main driver behind my OP forecast, so I would consider revising forecasts if Nintendo starts slowing their digital progress in multiple quarters.
Not sure on management guidance to be honest. I have been largely ignoring it because they are so detached from reality, but they are useful as a barometer for gauging management sentiment. I think sentiment has been improving amongst management after a strong 2020, so might see continued aggressive guidance (for their standards).
Excellent thought process. Loved reading.
The last line made me chuckle tho ;)
Monster Hunter Rise in March is coming up. Think it works wonders for both Capcom and Nintendo. Let’s see.