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Information Regarding Nintendo’s Expansion into China and Their Market Cap

Wii U china

Ricard Julianti has linked to me some interesting information regarding Nintendo rise in Stock over the last few days. It seems the firm is getting ready to expand in China by acquiring one of China’s existing distributors. There is also information clearing up the whole “market cap” situation that’s going on right now. 

This is all via tehrik-e-insaaf on NeoGAF:

Nintendo is set to announce some news about their distribution in China (the rumors I’ve heard are that they’ve acquired their existing distributor)… people are speculating right now on their emerging markets launch strategy for the Wii Mini and 3DS… also some rumors about Nintendo developing some games specifically for emerging markets… Not sure what to make of them but if Nintendo developed Wii Cricket and gave it away with the Wii Mini in India, they might sell another 10 million units of (very profitable) hardware…

For those of you saying Market Cap doesn’t include cash – please take a basic finance class – the market cap is a reflection of all information about a company including its future operating income (i.e. the cash engine that you are buying) – and ultimately what investors value it at – so yes that equity value reflects ownership over all assets and liabilities of the Sony Corporation including ownership of its cash assets.

For the person saying that shareholders wouldn’t pass up a quick “20% profit” if someone initiated a hostile takeover via tender – you don’t know much about institutional investors or securities laws – especially Japanese ones. When institutional holding is paired with individual shareholders – it suggests that 40% of the outstanding issue (float and non-float) is in the hands of Japanese persons or entities. Microsoft already bid 25 billion for Nintendo (double its market value) in 2000 and the board turned it down. The thing institutional investors care about more than anything else is a stable dividend which Nintendo effectively guarantees against their balance sheet – the equity value is irrelevant in the short-term particularly in Japan because the alternatives to buying a dividend-generating company is to buy near-zero yielding treasuries and none of these institutions are going to throw away 20-30 years of stable dividends for a “quick” 20% upside on their equity. Iwata is extremely well liked by most of the largest shareholders in 7974 – there is zero chance he is going to be fired..

There is a reason Nintendo has not been a profligate spender this year – there were rumors that they were trying to get into the Index/Atlus bidding war – but Iwata really doesn’t want to deviate from his gameplan of returning the company to profitability – he wants a clean operating profit and net income – as long as Nintendo even hits 30% of their operating profit target – investors are going to reward them after two consecutive years of losses from building headcount and sustaining losses from R&D for the Wii U.

There is no chance Nintendo’s stock is going to fall 25% if the company returns to profitability because their balance sheet’s cash position is stable enough that what they report, even if below expectations, would only be additive to very low operating expectations from the market. If Nintendo somehow hits 50% of their target then I see another 10% upside in the stock from today or more, depending on what people bake into expectations for their emerging markets distribution strategy.

As for people thinking there is an imminent strategy shift. No one is dumb enough to buy Nintendo right now (Q3) because they are going to abandon their successful 3DS platform and start making $5 dollar iPhone games. Well, there are some people dumb enough to do that, but no sophisticated investor is going to do that, and people making that claim (certain equity analysts from crappy 3rd tier shops) really don’t understand the company and are making helicopter calls based on Silicon Valley group think about mobile gaming and the awe-inspiring power of its magical innovation which will take over the world.

source – GAF

 

PE’s Take: 

Things are going to get really interesting from here on out. 

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Author: Francis@PE (14886 Posts)


38 Responses to Information Regarding Nintendo’s Expansion into China and Their Market Cap

  1. ryuken13 says:

    Pardon me stating the obvious but Nintendo is profitable and has been profitable/stable for quite some time..

    They have clearly proven to the world that they know how to spend their money and invest resources..

    China is going to be seriously high risk, kind of a Gold Rush that China can make a reversal on overnight and rescind trading and sales..

    For too many reasons to mention, Nintendo is the gaming company best poised to take advantage of this opportunity.. They have proven through their actions to be cautious investors that are focused on the long term.. The wise thing to do is cautiously enter this market and wait and see how China's govt feels about the industry long term.

    • hardensoul72 says:

      Nintendo already has a presence in China thru their iQue partnership, they already released N64 console version and handhelds from GBA to DS and recently iQue 3DS.

  2. _V_ says:

    Speaking of lifting bans, I'd like to share this with those who are fighting to end region locking since every website is talking about it at the moment:
    http://www.gametrailers.com/side-mission/68314/3d

  3. gamenchick says:

    Wii Mini seems like an odd choice over Wii U

  4. […] Ricard Julianti has linked to me some interesting information regarding Nintendo rise in Stock over the last few days. It seems the firm is getting ready to expand in China by acquiring one of China’s existing distributors. There is also information clearing up the whole “market cap” situation that’s going on right now. This is all via tehrik-e-insaaf on NeoGAF: Nintendo is set to announce some news about their distribution in China (the rumors I’ve heard are that they’ve acquired their existing distributor)… people are speculating right now on their emerging markets launch strategy for the Wii Mini and 3DS… also some rumors about Nintendo developing some games specifically for emerging markets… Not sure what to make of them but if Nintendo developed Wii Cricket and gave it away with the Wii Mini in India, they might sell another 10 million units of (very profitable) hardware… For those of you saying Market Cap doesn’t include cash – please take a basic finance class – the market cap is a reflection of all information about a company including its future operating income (i.e. the cash engine that you are buying) – and ultimately what investors value it at – so yes that equity value reflects ownership over all assets and liabilities of the Sony Corporation including ownership of its cash assets. For the person saying that shareholders wouldn’t pass up a quick “20% profit” if someone initiated a hostile takeover via tender – you don’t know much about institutional investors or securities laws – especially Japanese ones. When institutional holding is paired with individual shareholders – it suggests that 40% of the outstanding issue (float and non-float) is in the hands of Japanese persons or entities. Microsoft already bid 25 billion for Nintendo (double its market value) in 2000 and the board turned it down. The thing institutional investors care about more than anything else is a stable dividend which Nintendo effectively guarantees against their balance sheet – the equity value is irrelevant in the short-term particularly in Japan because the alternatives to buying a dividend-generating company is to buy near-zero yielding treasuries and none of these institutions are going to throw away 20-30 years of stable dividends for a “quick” 20% upside on their equity. Iwata is extremely well liked by most of the largest shareholders in 7974 – there is zero chance he is going to be fired.. There is a reason Nintendo has not been a profligate spender this year – there were rumors that they were trying to get into the Index/Atlus bidding war – but Iwata really doesn’t want to deviate from his gameplan of returning the company to profitability – he wants a clean operating profit and net income – as long as Nintendo even hits 30% of their operating profit target – investors are going to reward them after two consecutive years of losses from building headcount and sustaining losses from R&D for the Wii U. There is no chance Nintendo’s stock is going to fall 25% if the company returns to profitability because their balance sheet’s cash position is stable enough that what they report, even if below expectations, would only be additive to very low operating expectations from the market. If Nintendo somehow hits 50% of their target then I see another 10% upside in the stock from today or more, depending on what people bake into expectations for their emerging markets distribution strategy. As for people thinking there is an imminent strategy shift. No one is dumb enough to buy Nintendo right now (Q3) because they are going to abandon their successful 3DS platform and start making $5 dollar iPhone games. Well, there are some people dumb enough to do that, but no sophisticated investor is going to do that, and people making that claim (certain equity analysts from crappy 3rd tier shops) really don’t understand the company and are making helicopter calls based on Silicon Valley group think about mobile gaming and the awe-inspiring power of its magical innovation which will take over the world. source – GAF Information Regarding Nintendo’s Expansion into China and Their Market Cap | PLAYERESSENCE […]

  5. Kaloi2 says:

    Isn't Nintendo one of the only publishers with almost 100% "E for Everyone/ PEGI 3 " games? LOL It will be interesting to see Nintendo's games be essentially the only ones cleared for sale there.

    It will be funny if the Wii Mini takes off and all the 3rd parties that ignored the Wii will be left sitting with the dunce cap on while Nintendo sells millions of 6 year old games.

  6. cmb says:

    I would buy wii cricket if it came out. I have been dreaming of it for a long time.

  7. Gonzo says:

    it is time for a MMORPG game please be pokemon, fire emblem, zelda
    a game like lineage 2 or guild wars 2
    https://www.youtube.com/watch?v=rTHtJxfOZRk

  8. tjb says:

    I bet anything psn and xb can't run their OS there because of the censorship involved with the government. Nintendo has a leg up on them most likely. Sony will have to restrict some of their features in order to sell their product their, that is if they have some type of foothold their like nintendo does. but i see nintendo selling like crazy in china and the 3ds will be in its own category.

  9. Aiddon says:

    So basically this poster was using something most people who criticize Nintendo forgot about: common sense and logic. Furthermore, they actually studied how Japanese businesses and business culture are. That's another thing that's always bugged me about Nintendo's critics; that kind of slimy, uncomfortable, insidious layer of xenophobia underneath it all. Basically when people don't understand how Japan works, instead of trying to educate themselves they throw a hissy fit demand their expectations be made. It's just tiresome

    • revolution5268 says:

      And that is why you see the western media calling Nintendo out.

    • ryuken13 says:

      Great post sir.. You cannot apply Western Thinking and Business practices to Japan.. They have their own culture and way of doing things.. It it right or wrong?? No simply different..

      For example, I live in the USA and worked retail.. If I did not open at 9 AM sharp or a or 2 early people freaked..

      Same business in China.. Owners open at 8:55 to 9:15 and do not stress on punctuality as much as we do in the West..

      Different culture, different thinking

  10. jackiecruise69 says:

    Well, hopefully all goes well. Market share in China would be a huge boost for Nintendo.

  11. timg57867 says:

    Great hear that Nintendo's gonna go for it. I personally think that they have the best shot at it due to their wide appealing software. Microsoft has zero chance in my eyes because Xbox is virtually dead outside of America and Europe and Sony's IPs have been leaning quite a bit to the Western style and I am not sure if the Chinese are gonna be wowed by their hardware. We'll have to see.

  12. Trilink says:

    Will be interesting to see how the Chinese market will view the unbanned foreign consoles, especially with the people primarily enjoying MMORPG games, i wonder how well these new consoles can compete with these online pc games.

    Either way, we've now entered a new chapter in the gaming industry with the release of all 3 next-now current gen consoles – "The China Test!".

  13. rubix8702 says:

    If they can attain even a one percent market share in China, THAT is huge. Seriously, the thirst for luxury items is growing, and so is the middle class.

    • RicardJulianti says:

      The Chinese middle class….is about as large as the entire US population. Mix that with commuters desire to do SOMETHING on the train ride to work…….yeesh

      • rubix8702 says:

        Dude tell me about it. I remember watching a documentary on Wal-Mart and how the Chinese buy $1000 bottles of wine… at WAL-MART (sorry had an OnlyUnextgen moment lol). They also visit the supercenters on average 8 times a day. The buying power is simply too extraordinary to imagine. Plus, their GDP has been growing annually every year, and last year it was 7.6%. The one defacto trigger is the government, it can make or break China's trade (the battle to raise the yuan is another whole issue lol). Anyway, if any company can get in there and get an edge, they will make a killing.

        http://www.chinadaily.com.cn/business/2014-01/08/

  14. WiiUExposed says:

    Welcome to communism Nintendo. You will hate it.

    Although to be technically accurate, they have sold products there, such as the iQue player that Cosmo uses for Ocarina speedruns.

  15. bruce says:

    who is this guy and why should we take his word? serious question

    • RicardJulianti says:

      As for who he is……just a GAF user….not sure if there's anything more to it than that. His post was one of the only intelligent things said in the thread…..and it came in around page 6.

      He clearly knows what he is talking about when it comes to the stock market in general, probably has been a long term investor. Not necessarily of Nintendo, but just in general. Your average nobody wouldn't know things about float and non-float, institutional investors or securities laws.

      • bruce says:

        but i thought neogaf wasn't credible

        • RicardJulianti says:

          Where in the world did you get that idea?

          Most of the credible rumors that come to light show up on GAF first and major news sites cite it as a source constantly. There is even a meme when someone makes a new thread for an article where the source is NeoGAF……GAF>Internet>GAF.

          It is chock full of developers, journalists, "journalists" and quite a few insiders. They don't take rumors lightly either, if you post one and can't verify the source to the mods…..you will be perma-banned.

          I wouldn't be surprised if most of the news articles people link in the contact section are obtained by browsing NeoGAF and then just taking the source article and posting it.

          • bruce says:

            i hear people say this all the time on this site its only credible when the news benefits them and their arguments

          • Seiren says:

            Because Neogaf has a shitload of bile on their forums

          • RicardJulianti says:

            I don't think I have ever seen someone on here say that NeoGAF isn't credible….

            There are a LOT of insane people and fanboys and so forth….but when it comes to actual information there's hardly a place on the internet that has more credible sources.

          • ryuken13 says:

            Thanks for posting that Ricard.. Answers some questions I had about Neogaf..

            I certainly trust you and love Playeressence.. Francis's forum is quality and I like it just fine..

            We have Anti and you to dig cool stuff up… lol

  16. *NormalGamer* says:

    “Things are going to get really interesting from here on out.”

    Indeed. And Nintendo has been entering the market in China under the iQue name since 2002 when the ban existed; wonder if the iQue company will undergo a major upgrade now that China is no longer restricting game consoles in their region. ^_^

  17. Matthew Wesley says:

    Well… Methinks Nintendo is slipping on it's ass kicking boots.

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