Nintendo Is in for a Disastrous 2014

2013 was a challenging year for Nintendo, but 2014 is shaping up to be a disaster. Could this be the year that the company descends into an irreversible downward spiral?

Mar 8, 2014 at 7:00AM

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Source: nintendo.com

It's no secret that Nintendo (NASDAQOTH:NTDOY) is in trouble. Whether or not the company can turn things around is still open for debate, but the future has never looked so bleak for the world's oldest and largest gaming company. The handheld market that Nintendo once had a firm control over is rapidly veering in a different direction and threatens the company's most important source of income. Sales of its 3DS handheld were down in 2013 and sales targets were reduced from 18 million units to 13.5 million units. Meanwhile, the Wii U is on track to go down as one of the biggest failures in the history of the industry.

If 2013 was a bad year for Nintendo, 2014 looks to be much worse. With the 3DS beginning to show its age and the Wii U unlikely to find any notable traction, the company is in for a beating. Here's what Nintendo is up against in this year.

Mario's sunshine
2013 wasn't all doom and gloom for The House that Mario Built. Nintendo reported that 3DS software sales were up an impressive 45%. Given the expansion of the system's user base and the strength of its 2013 lineup, it's easy to see where this growth came from. Games like Luigi's Mansion 2: Dark Moon, Monster Hunter 4, Pokemon X and Y, Animal Crossing: New Leaf, and The Legend of Zelda: A Link Between Worlds all put up great numbers last year. What's more, that list excludes a number of titles that passed the million unit sales mark. If that seems like a lot of big games for one year, it is.

Where are 3DS's 2014 games?
Nintendo's 2014 3DS lineup looks substantially weaker than what was put forth in 2013. The only game scheduled for a 2014 release that looks to have massive sales potential is the upcoming "Super Smash Bros." sequel. The title will be the first in the series to land on a handheld, although a similar version of the game will also be hitting the Wii U. The drop-off in lineup quality and depth is massive and is indicative of the development and management problems Nintendo has suffered in recent years. Even though the installed base will grow substantially this year, 3DS's software numbers are likely to take a sizable hit.

Nintendo can't prop up two platforms simultaneously

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Source: pokemonxy.com

If you want to know how the 3DS wound up with such a weak 2014 lineup, it's important to understand why 2013's was so stacked. The 3DS got off to a dismal start, launching at a $250 price point (that the market soundly rejected) with a slew of games that did little to justify the system's existence. After the incredible success of 2004's DS hardware, Nintendo saw its handheld empire beginning to crumble. The company implemented a substantial price cut and shifted its development resources to ensure that the 3DS would succeed. This explains the Wii's poor lineup from 2011 on and was also a factor in Wii U's disappointing first year on the market. After shoring up the stability of the 3DS, Nintendo more fully began its attempts to transition to HD development and prop up the Wii U.

The worst platform to launch a game on
Nintendo's big 2014 games show that it is a console oriented year for the company. It just so happens that the Wii U is the worst place to launch software in the modern console gaming industry. Platform momentum is near non-existent, with the company recently having revised its fiscal year sales target from 9 million units to a 2.8 million unit goal it might still miss.

How is Sony doing?
While the 3DS is suffering from sales drop off in Japan, Sony's (NYSE:SNE) PS Vita has quietly been building momentum in the territory. That's not to say that the device isn't a massive disappointment for Sony or that claims of PlayStation 4's release boosting Western Vita sales are anything more than marketing trickery, but Vita is on an upward trajectory in Japan. According to sales tracking from Media Create, Vita's 2014 sales are up approximately 130% over the corresponding period in 2013. Sales of 3DS are down approximately 50%.

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Source: playstation.com

Despite a mostly sold out launch, Sony's PlayStation 4 may not wind up being a success in Japan. It will, however, take away what little chance the Wii U has of building momentum in the territory. Things are looking much better for Sony's console in other parts of the world, while Nintendo's Wii U is as good as dead in most territories.

Nintendo's worst year ever?
Based on the currently available information, 2014 looks to be a great year to bet against Nintendo. The company could shock the world with a groundbreaking innovation or a successful endeavor on mobile platforms, but it's in for a rough year on the hardware and software fronts. If you're looking to make an investment in a gaming company, you would be wise to avoid Nintendo for the time being. 

So if Nintendo is a bad play, which gaming company should you be looking at?
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Keith Noonan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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