Nintendo Co. Ltd. (NTDOY, Financial) had an impressive run in 2016 as the stock surged more than 50%. Moreover, the stock’s impressive run has continued as it is up nearly 70% year to date.
The primary reason for Nintendo’s success is its popular game “Pokémon Go,” which was released in July 2016. Since the game's launch, the stock has surged approximately 150%. The Japanese video game company has performed amazingly well in such a short span of time.
Nintendo is one of three significant players in the game console market. The company lags behind Sony Inc. (SNE, Financial) and Microsoft Corp. (MSFT, Financial) in terms of high-end graphics and horsepower, but competes well when it comes to gameplay. The company’s Wii console sales outperformed sales of both Sony’s PS3 and Microsoft’s Xbox 360.
Moving ahead, Nintendo launched its new Switch console in March. The company has repeated almost the same formula for its Switch console that worked for its original Wii. One thing that is disappointing, however, is its high price. It costs $299.
Moreover, unlike rival consoles, Switch is not sold as a bundle, which includes a game, at the base price. The console also does not support streaming services. The company said it is currently focusing on gaming in the Switch, leaving streaming as a secondary concern. It does plan to integrate streaming services into the Switch, but when this will occur has not been disclosed.
Most of the Switch’s games are for two or more players. As a result, you will need another full-sized controller when playing with more than two people. The controller costs $79.99, considerably more the PS4 and Xbox One controllers. The price will come down eventually, but will remain a substantial additional expense for the time being.
Despite being comparatively expensive, Nintendo shipped approximately 2.75 million units of Switch within the first month. One of the most popular titles available at the time of launch was “The Legend of Zelda: Breath of the Wild.” The company reported that almost every customer who purchased the Switch also bought the new Zelda game.
Furthermore, the company expects to sell around 10 million Switches in fiscal 2017. It also projects its operating profit to reach approximately $600 million, up from $258 million in fiscal 2016.
The company’s hardware unit sales peaked in 2009 due to the superior performance of its Wii console. Sales have declined every year since. Therefore, if the company manages to sell 10 million Switch units in fiscal 2017, it would mark the first net hardware unit sales growth in almost a decade.
The video game company has several robust franchises, including "The Legend of Zelda," "Mario," "Pokémon" and "Super Smash Bros." The company launched "Mario Kart 8 Deluxe" in April and is launching several other big titles in the second half of this year.
The next big game for Switch is "Super Mario Odyssey." The company is also set to release "Xenoblade Chronicles 2," "Arms" and "Splatoon 2."
Summing up
Nintendo has rewarded shareholders with stunning returns over the past 18 months and should continue to do so in the future. The Switch console will certainly help the company return to hardware sales growth.
The launch of the latest installment of “The Legend of Zelda” will also strengthen the Switch’s sales as it is one Nintendo's most popular franchises. The company also plans to release two expansion packs for the game. All in all, the company is building momentum for holiday sales by releasing a new title every month.
With Nintendo Switch off to a great start, the company is working hard to deliver quality games. The company has an attractive line of first-party games that should create strong momentum for the console. The only thing that could hurt sales is the Switch's high price tag.
Disclosure: No position in the stocks mentioned in this article.
