3 Ways Nintendo Can Save Itself

Nintendo needs to make these three major changes before it’s too late.

May 9, 2014 at 9:18AM

Nintendo (NASDAQOTH:NTDOY) recently reported dismal annual results due to lackluster demand for the Wii U, which has sold 6.2 million units compared to Sony's (NYSE:SNE) 7.5 million PS4 units and Microsoft's (NASDAQ:MSFT)million Xbox Ones.

Although the Wii U doesn't appear to be faring too badly against both rivals, investors should remember that the Wii U launched in November 2012, a full year before either the PS4 or Xbox One hit the market.

Image

Source: Nintendo.com

During the fourth quarter, Nintendo only sold 310,000 Wii U consoles -- a dismal figure considering that Sony has sold an average of over a million PS4s per month. On the bright side, Nintendo sold 590,000 3DS handheld consoles during the quarter, bringing its lifetime sales to 43.3 million units. The cheaper 2DS version has sold 2.2 million units to date.

Bad news, hopelessly high targets
For fiscal 2013, Nintendo posted a net loss of ¥23.2 billion ($229 million), a steep plunge from a profit of $68.9 million a year earlier. Revenues fell 10% to $5.63 billion. While things certainly look grim, Nintendo predicts that it will return to profitability, a profit of $197 million on revenues of $5.8 billion by the end of the year. Nintendo still expects to sell 3.6 million Wii Us and 12 million 3DS consoles by the end of 2014 -- a very steep target considering how weak sales were during the fourth quarter.

Yet what's clear to investors, who have watched shares of Nintendo fall more than 60% over the past five years, is that Nintendo needs to do something soon to change its current course. Let's discuss three things that Nintendo should do before it's too late.

1. Appoint a new CEO
Much of the disappointment regarding Nintendo stems from President and CEO Satoru Iwata's unwillingness to realistically adjust the company's forward projections. Iwata has a habit of falling woefully short of unrealistic expectations during earnings releases.

Up until January, Iwata claimed that Nintendo would earn a ¥100 billion ($982 million) profit in fiscal 2013. In the same month, Nintendo finally admitted that its full-year Wii U sales forecast of 9 million units was unrealistic, abruptly slashing expectations to 2.8 million units and acknowledging that it would end with an operating loss for the year.

Iwata's blatant stubbornness -- demonstrated by his affirmations of inflated forecasts for nine months before revising them -- is undeniably reckless. Nintendo needs a new CEO who can steer the company in the right direction in the first quarter of a fiscal year, not one who waits until the fourth quarter before admitting defeat.

2. Escape the shadow of Shigeru Miyamoto
It's hard to imagine Nintendo without Shigeru Miyamoto, the man who created Mario, Donkey Kong, Zelda, and countless other beloved franchises. But even though 61-year-old Miyamoto is to Nintendo what Walt Disney was to Disney (NYSE:DIS), it might be time for him to step aside.

Miyamoto's earlier accomplishments shaped Nintendo's identity, but in recent years he has simply put fresh coats of paint over older ideas. Over the past three years, he produced Super Mario 3D Land and Luigi's Mansion: Dark Moon for the 3DS, and Pikmin 3 for the Wii U -- all well received games but also retreads of his older ideas.

Super Mario

Super Mario 3D Land. Source: Nintendo.

Miyamoto's problem touches all aspects of Nintendo -- it continually remasters, remakes, and reboots titles when it should be looking forward. So many of Nintendo's new games are built on Miyamoto's older designs that the company has failed to release any major new IPs over the past decade.

Therefore, instead of investing heavily in remaking Miyamoto's hits repeatedly, Nintendo needs to support new ideas with new characters. So for the sake of the company, Miyamoto should step aside and let some rising stars at Nintendo take the initiative to help the company develop the next game-changing title like Super Mario Bros. or Wii Sports.

3. Following Disney's example
As I mentioned in a previous article, Nintendo is stuck where Disney was in the early 1980s prior to the appointment of Michael Eisner as CEO -- pumping out family-friendly fare for a steadily shrinking market.

Eisner bailed Disney out of that rut by focusing on developing films for older audiences through Touchstone Pictures, helping Disney jump from last place to first place in total box office receipts among the eight major studios within four years.

Nintendo could do the same by acquiring third-party publishers, many of which fled to Sony's PlayStation in the mid 1990s due to Nintendo's insistence on sticking with the cartridge format. Although developers have slowly returned to develop 3DS and Wii U titles, Sony's PS4 and MIcrosoft's Xbox One get arguably flashier titles such as Konami's (NYSE:KNM) Metal Gear Solid V: Ground Zeroes and Square Enix's eagerly anticipated Final Fantasy XV.

Nintendo finished fiscal 2013 with over $9 billion in cash. Considering that Square Enix, Konami, and Capcom have a combined market cap of approximately $6 billion, Nintendo could theoretically acquire all three major Japanese publishers in one fell swoop with its cash on hand.

As a result, Nintendo would become the home to iconic characters such as Lara Croft, Solid Snake, and Mega Man. More importantly, it could profit from sales of those titles on the PS4 and Xbox One, without having to release its flagship Nintendo characters on rival platforms or mobile devices.

The bottom line
It's frustrating to watch Nintendo stand in the middle of the road like a deer in the headlights when it has so much potential.

But in my opinion, Nintendo can't succeed unless it changes its CEO, moves forward out of Miyamoto's shadow, and aggressively pursues new sources of inorganic growth. If it does so, it could have a chance at recapturing a larger part of the market that it revolutionized and effortlessly dominated during the 1980s and 1990s.

Give your portfolio a 1-up
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Leo Sun owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Microsoft and Walt Disney. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers