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.
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.
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