On Friday, shares of video game console maker Nintendo (OTCPK:NTDOY) fell 17% after a huge guidance cut on the number of hardware and games sold in the current fiscal year. Nintendo continues to underwhelm with its Wii U console, which faces new competition from the PlayStation 4 (NYSE:SNE) and Xbox One (NASDAQ:MSFT). The good news for video game players or investors, Nintendo may have a huge trick up its sleeve with mobile.
There's no question that the popularity of mobile games and tablets has provided an extra source of players and revenue for video game companies. Large video game companies like Electronic Arts and Activision have put some of their beloved franchises like Madden, FIFA, and Call of Duty into the mobile world with versions created for smartphones and tablets. Nintendo, which along with consoles has a popular base of exclusive games and characters, has continued to ignore the mobile opportunity. That may be changing after Friday's dim picture.
Nintendo president Satoru Iwata had this to say, "We are thinking about a new business structure. Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business. It's not as simple as enabling Mario to move on a smartphone." Now this doesn't mean go rush out and buy Nintendo shares right this minute, but investors should be ready to see the possible upside in this consideration from the company.
There are several routes Nintendo could take with a launch to mobile. The company could release versions of franchises that have already been made for consoles. Essentially, the old Mario and Donkey Kong games would play on mobile phones just like old games like Tetris do. Nintendo could package these games together or try and launch several at a time, charging around $5 per game. Nintendo has huge franchises like Mario, Zelda, Donkey Kong, and Pokemon that would all see huge demand on mobile. Of course, the downside that has kept Nintendo from doing this is the belief that it would hurt sales of 3DS and its games as a direct competitor.
The popularity of Nintendo brands continues today. In the week ending January 4th, Nintendo saw three of the top ten global selling games with "Pokemon X/Y" (226,186 units), "The Legend of Zelda: A Link Between Worlds" (120,354 units), and "Super Mario 3D World" (112,241 units).
A look at the top video game franchises (by units) of all-time list reveals just how popular Nintendo's brands are. Mario ranks as the number one selling franchise of all time with sales over 446 million units. What's amazing is Super Mario on its own (262 million units) actually ranks ahead of the next highest franchise. Pokemon comes in the number two spot with sales of 245 million, as of October 2013. In fact, behind the two Nintendo franchises, the next highest selling franchise is EA's "The Sims" with sales of 175 million. Obviously, Nintendo's Mario brand has been around since 1981, but the popularity continues with every new release. Nintendo could easily release three mobile games based on Mario, Zelda, and Pokemon and reward shareholders for the entire year.
What may hurt for Nintendo fans and investors is that Rovio, owner of the Angry Birds franchise, recently boosted its success with a game similar to Nintendo's Mario Kart. The game called "Angry Birds Go" was released in December as a free-to-play game that also came with an interactive toy line from Hasbro (NASDAQ:HAS). A release of Mario Kart on mobile with a similar toy line could do extremely well for Nintendo. The company did a similar interactive toy line with its Pokemon Rumble U game, which I highlighted in a previous article.
Nintendo estimated that it will lose $230 million in fiscal 2013, a huge number with the recent Wii U console launch and several new hit games from franchises like Pokemon and Zelda. For the fiscal year, Nintendo now expects sales of 2.8 million Wii U units, compared to a prior forecast of 9 million. The company expects to sell 19 million Wii U games, down from a previous target of 38 million. In fiscal 2012, Nintendo sold 3.45 million Wii units. Nintendo also cut sales expectations of its handheld 3DS to 13.5 million units, from a prior goal of 18 million.
Back in September of 2012, I recommended buying shares of Nintendo due to the launch of the Wii U. I told investors that the console coming out ahead of the PlayStation 4 and Xbox One was a positive and that Nintendo would see strong market share prior to the additional console launches. At that time, shares were trading around $15. Investors saw gains during parts of the period from September 2012 until Friday.
Shares of Nintendo hit a record high back in November of 2007 at the height of Wii mania. Since that time, shares have continued their fall as the company continues to be family oriented with consoles and games and get beat by competitors like Sony and Microsoft, along with new competition from smartphones and tablets. Nintendo needs to take steps to bring their company back to life. The solution is to bring huge franchises like Mario and Pokemon to mobile. Nintendo needs to take the fight to their rivals and beat them at their own games. Look for buzz about Nintendo moving to mobile continue to build. Shares could have a lot of upside with a potential announcement and the actuality of mobile games.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NTDOY, HAS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.