Nintendo's Wii U: Huge Flop or Smashing Success?

When Nintendo (NASDAQOTH: NTDOY  ) released the original Wii console, the stock was primed for insane gains. Share prices jumped 150% in the next 52 weeks, leaving some of that era's most rambunctious growth stocks in the dust.

That was six years ago. Nintendo has rolled out its replacement for the aging Wii system, about a year ahead of expected release dates for the next generation of Microsoft (NASDAQ: MSFT  ) and Sony (NYSE: SNE  ) consoles. Did Mario capture lightning in a bottle again, or was the Wii a unique catalyst, never to be repeated?

Where's Pikachu when you need him?
The Wii U debuted just before Black Friday, so the first week of sales should be a decent barometer for consumer interest in the new system.

In the first week on store shelves, Nintendo shifted "more than 400,000 Wii U units." That's below the 600,000 units sold in the original Wii's launch week. Then again, it seems like a calculated move by Nintendo -- the Wii U sold out in retail stores across the country. Best Buy (NYSE: BBY  ) claims to have sold out of its online inventory of both basic and deluxe systems, though Amazon.com (NASDAQ: AMZN  ) says it has a few hundred units available.

If you'l recall, the first Wii was perpetually sold out for months. In March 2007 -- four months after the system's official debut -- I had to snag a used Wii at my local GameStop (NYSE: GME  ) store, seconds after watching employees put it on the shelf. At the time, I was monitoring Wii inventories in local and online stores and waiting for a lucky break.

And it really was a lucky break. In December of 2007, a full year after the original release, fellow Fool Rick Munarriz still had to advise our readers how to snag a Wii before Christmas.

Buying game systems (or anything else!) this way is inconvenient, but chronic shortages also help build mystique around the brand. Apple (NASDAQ: AAPL  ) is a master of this strategy, and I'm pretty sure that the current short supplies of iPad Mini and iPhone 5 units are at least partly intentional.

One side effect of this supply-and-demand balancing act is that initial sales might not actually matter all that much. Nintendo could probably have sold out a far larger first-week stash, but at the cost of sacrificing that crucial je ne sais quoi that keeps potential customers converting into real buyers.

Can Nintendo stretch out another long tail?
And that's the real magic of Nintendo's business model. The first Wii has long legs -- Nintendo sold more than 300,00 of the 6-year-old console last week. On the handheld side, the antediluvian DS outsold the far fresher 3DS. The hefty sales of old hardware surely ride on deep Black Friday discounts, but they also prove just how long Nintendo expects each new product to generate sales.

It's a gamble, but potentially a great one. The video game industry is extremely cyclical to begin with, and casual gaming on smartphones and tablets has come along to depress incumbents like Nintendo even further in this particular downswing.

Source: S&P Capital IQ.

Nintendo's profits in this cycle maxed out in 2009, when the Wii had outgrown the supply-constrained toddler years and built a robust game library. The company hopes to do it all again with the Wii U, meaning that the next financial peak should crest in 2015 or so.

Is the Wii U different enough to make it happen, or does the next half-decade belong to Microsoft's Kinect-style revolution? For the record, Microsoft sold 750,000 Xbox 360 consoles in America last week, probably edging out Nintendo's combined Wii and Wii U sales.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, the Xbox 360 and Kinect are taking the video game market by storm. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.


Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 29, 2012, at 10:17 PM, goldbugger33 wrote:

    Just want to make a comment. Amazon doesnot sell Nintendo hardware. I have call Amazon for a preorder for a Wii U, only 3rd party sells it.

  • Report this Comment On November 29, 2012, at 11:15 PM, OceanJackson wrote:

    How come this article isn't linked to the NTDOY CAPS page? This is the 3rd or 4th time this has happened...I'll find a Motley Fool article through Google on Nintendo that I couldn't find by searching it on the Fool!

    For example this article doesn't show on My Watchlist despite NTDOY being on there, and it's not on the NTDOY Caps page, and when I type either "Nintendo" or "NTDOY" into the general search bar it doesn't come up either.

    'Sup with that?

  • Report this Comment On November 29, 2012, at 11:19 PM, OceanJackson wrote:

    I'd also like to 2nd the fact that Amazon doesn't officially carry Nintendo hardware. All 3rd party sellers on there.

    Lastly I'd be interested to hear whether you think Nintendo shares are a "Buy", "Sell", or "Hold?" at this point.

    It seems to me like the shares are undervalued even if the Wii U is only marginally successful.

  • Report this Comment On November 30, 2012, at 7:18 AM, sophball wrote:

    This is a face: your wii consoles are great>

  • Report this Comment On November 30, 2012, at 11:26 AM, boston45 wrote:

    I used a product tracker at

    http://instockhere.com/productCat/wiiuconsole

    amazon's third party prices are outrageous

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