Nintendo Levels Up to Mobile Gaming, But Is It a Foolish Play?

Why did Nintendo's (NASDAQOTH: NTDOY) stock jump from $14 to $22 this week? Is the end of console gaming finally in sight? Will Glu Mobile's (GLUU) celebrity tie-ins take them where no mobile gaming company has gone before?

Sean O'Reilly and Nathan Hamilton take their fun seriously in this tech edition of Industry Focus with a look at game-related stocks and what playful Fools should know about the companies that want to jump, smash, shoot, and race their way into investors' hearts, and their portfolios.

A full transcript follows the video.

Sean O'Reilly: Fire up your Atari; we're talking gaming on this tech edition of Industry Focus.

Greetings Fools, I am Sean O'Reilly, joining you here from beautiful Alexandria, Virginia, at Fool Headquarters. I am joined by the awesome and one and only Nathan Hamilton. How are you today, sir?

Nathan Hamilton: I'm good. I'm glad to be here. I know we normally talk about some different tech topics.

O'Reilly: This is possibly the most important topic we could talk about in tech.

Hamilton: I know. There are probably a lot of wives at home that don't enjoy this topic, but we're going to talk a little bit more about it, and maybe stocks and investing.

O'Reilly: One can only hope!

What everybody is talking about right now is the fact that Nintendo ... it's actually been amazing to me how, basically for my entire adult life, this stock has just gotten no love. Nintendo just can't make any money. But the stock shot up from $14 to $22 recently. What is going on?

Hamilton: Yes, big jump! Essentially, Nintendo came out and reversed course -- and some people expected it eventually. They say that they're going to come out with games for tablets, smartphones, Android, iOS, and so forth.

O'Reilly: Finally.

Hamilton: Yes, so you won't have to go buy one of the Wii U's. That really hasn't been selling at all in the last year or two.

It's a big move. Really that's where some of the gaming is moving to, and Nintendo has been completely hesitant to do so because I guess they've been sheltering their Mario franchise and really wanting to keep the quality there.

O'Reilly: Do you think they were looking at the Kardashians and seeing ...?

Hamilton: You know, I don't know if the Kardashians were a model for what Nintendo is doing!

O'Reilly: If I were them I would be like, "This is just getting silly. They made like $300 million off this stupid Kim Kardashian game. We can't let this fly."

Hamilton: Yes, but you know what? That's a good point. The Kim Kardashian game. You look at it, and what mobile gaming is for the most part; it's free to play. Simply sign up, get your free trial.

O'Reilly: Then they make their money off the upgrades.

Hamilton: Yes, charge you for the upgrades and so forth. Now, what sort of strategy will Nintendo use? Will they release Mario ...?

O'Reilly: I will not pay money for turtle shells. I just won't!

Hamilton: That's a good point. If I were to speculate or guess, I can't imagine they would go the free to play route.

O'Reilly: I would rather just pay $50-60 for Smash Bros. Brawl, and do it cloud based. That's what I would prefer.

Hamilton: The interesting part of it is a lot of people looked at it, and some have been commenting for some time, "When is Nintendo going to come onto tablets and smartphones?" There's been all sorts of speculation.

The thought has always been, "We're just going to port games over, our popular games, and just make it available for tablets and for smartphones."

But what Nintendo actually commented on specifically is they're saying, "We're going to develop games for these operating systems," not just use it as a secondary option but really putting it in focus and saying, "Hey, we've got to develop games that work on these devices." I guess they're open to doing so.

O'Reilly: Right. This speaks to the future of gaming.

Hamilton: Yes. The future of gaming, we look at it two ways. You've got mobile and console gaming. If we look at the mobile side of it, you have to wonder why Nintendo didn't do this sooner.

O'Reilly: I would do anything to play the original Mario on my iPhone. That would be just the coolest.

Hamilton: Mario Kart?

O'Reilly: Yes, Mario Kart ... I got the Super Nintendo. That game, Super Mario World? I can play that with my eyes closed. I played that from age 8-14, constantly.

Hamilton: It may be a good move to be patient. Maybe this has been the plan for some time with Nintendo.

O'Reilly: Keep them waiting? Keep them guessing?

Hamilton: Yes. Nintendo's had the most popular franchise in gaming history, so you've really got to be somewhat protective of it, make sure you can execute on a different platform, because really ...

O'Reilly: If they let people down, it could be bad.

Hamilton: Yes. The infrastructure side of it, the design and so forth. You're on a smaller screen. It's really a different sort of gaming design and you want to make sure to keep those franchises.

O'Reilly: Investors obviously bid up Nintendo stock for a reason. Have we seen any analysis or economic thought into how much money Nintendo could make off of this?

Hamilton: I've seen some. We know this -- well, we don't so much know it, but we can guess -- that they probably won't go the free to play route. They'll probably charge up front. But what the actual unit numbers could be, who knows for sure on that?

O'Reilly: Pure speculation.

Hamilton: It would be interesting to see. I wonder how much market cap they added with that jump from $14 to 22.

O'Reilly: Yes.

Hamilton: It would be pretty interesting to see.

O'Reilly: I wanted to talk to you real quick, while we're on the subject of gaming. It looks like the Xbox and the PlayStation are finally going to be able to compete legally in China for the first time. Did you read about all that stuff?

Hamilton: Yes, some of the barriers have been broken down over the last, I think, six months of so.

O'Reilly: There are these huge black markets for both systems in china this whole time though, so ...

Hamilton: Really, if you look at it, it's a pretty good tailwind for both consoles. We talked earlier about the future of gaming and we touched on mobile, but you also have to look at the future of gaming in consoles.

There are some people out there that believe maybe the most recent iterations are the last consoles that, say Microsoft (MSFT -1.27%) or Sony (SONY -0.71%) will produce.

O'Reilly: It would not surprise me.

Hamilton: Yes. You really have to look at it from a technological perspective, and just technology in general. In likelihood, it's going to happen. We're going to have streaming as the main provider of gaming for what we call console gaming, now.

The biggest barrier is technology. Are the Internet speeds there to support it? Is the infrastructure in place from the telcos and so forth? That's really the biggest question.

At this point, it's very close. Maybe the technology is a little early, but we can definitely see five years down the road that maybe consoles won't be produced anymore; you'll just buy your smart TV. You can stream Halo, you can stream Super Mario, any of these games across your smart TV, and have it all based in the cloud.

O'Reilly: Even the latest Halo game, how much hard drive space would that take up if you wanted to download it and save a couple of games so you could play it without the Internet?

Hamilton: I don't know specifically on that, but when Microsoft announced Windows 10 recently, they had a press event in January where they played Forza 2 on a streaming service.

You can actually play it through Windows, so you don't need the console. You just play it through Windows. You can hook up your normal device controller and stream it through Windows 10. There were no detectable latencies in the play of the game.

O'Reilly: I have to think that the time is now, technologically. How long has ... 10 years ago people were playing Xbox Live Halo with their headsets. Correct me if I'm wrong.

Hamilton: Yes, but the computing power necessary for the games that we've got nowadays has increased tremendously.

O'Reilly: True, yes. The environments are nicer. The sizes of the environments are bigger, everything.

Hamilton: You look at what Internet speed is needed to support that ...

O'Reilly: Got it.

Hamilton: Some areas have that infrastructure in place. If they've got 5 GHz and so forth, they can get that quality. But I have to imagine the majority of North America, the world, other countries and so forth, they don't have that infrastructure in place.

That's an impediment to it really taking off and (unclear) consoles completely worthless.

O'Reilly: Very interesting. Taking a step back, what's up with Glu Mobile?

Hamilton: Kim Kardashian. We'll talk a little bit about Kim Kardashian and stocks.

Glu Mobile came out, I believe it was either Wednesday evening or Thursday and announced that there is a deal with Glu Mobile where if you play their game enough, plug away on their game, you'll have a chance to meet Kim Kardashian in person.

O'Reilly: Sign me up!

Hamilton: It's really interesting, because I was looking at the ...

O'Reilly: I would want to ask her one question.

Hamilton: What's that?

O'Reilly: Kim, have you played your game?

Hamilton: We know she's cashed some pretty big checks from it. I don't know if she's played it.

O'Reilly: That's the important thing.

Hamilton: But before this podcast here, I went onto iTunes to see where the game was ranked on the top grossing list, and it's sitting at 25 currently. This is on Friday morning, what are we at, the 20th?

The news broke, I believe it was Wednesday night/Thursday, sometime in that timeframe. The ranking at that point was around 31-23. If we look at it, in just a day or so, day and a half, the game has increased its ranking for top grossing on iTunes pretty significantly.

You have to look at it. This is driving some revenue for Glu Mobile. Maybe it's a good marketing move, to keep the revenue coming in.

O'Reilly: I understand they've got a Katy Perry game coming?

Hamilton: Yes. That could be a tailwind for Glu Mobile as well, but it's a volatile stock. It's all over the place.

There will be a Katy Perry game, and there will be a Jenner Sisters game coming out in the future for Glu Mobile as well.

O'Reilly: Where will it end?

Hamilton: Let's hope it's as successful, at least, as Kim Kardashian.

O'Reilly: Unbelievable. All right, before we go you're going to try to stump me with some trivia.

Hamilton: Yes. We skipped it last week. I didn't realize we skipped trivia last week.

O'Reilly: Criminal.

Hamilton: Since we've got a gaming edition, let's make it gaming related.

The question here is Super Mario franchise, as we've seen, is the most successful gaming franchise of all time according to the Guinness Book of World Records. How many units have been sold globally for Super Mario Bros.?

O'Reilly: Are we talking the physical cartridges that, when they don't work, you've got to blow on them a little?

Hamilton: Now we're getting specific! I don't know. I grabbed it from the Internet. Whatever the Internet says! Our options are 100 million, 240 million, 320 million, or 419 million.

O'Reilly: I'm just going to go high and do 419.

Hamilton: Wah-wah.

O'Reilly: Wah-wah. Is it 320?

Hamilton: No, it's actually 240 million.

O'Reilly: That's all? Really?

Hamilton: Yes.It is a pretty significant number though. But if you compare it to recent sales for 2014 for certain games you have to wonder if that record is going to stand, because the best-selling game, by units, in 2014 was Call of Duty: Modern Warfare and it sold just over 15 million units.

Nintendo's run rate, if you back it up to 1985 when the game was introduced is roughly 8 million per year.

O'Reilly: Yes, that's 30 years to get to 240.

Hamilton: Yes. If Call of Duty -- or Destiny, which some think can be a pretty big franchise -- but if Call of Duty can continue to increase or have a sustainable output of games, it certainly could run up there with Mario.

O'Reilly: Got it. Since this is The Motley Fool and we do try to invest Foolishly, I'm going to try to stump you. No, (unclear).

Of the three major gaming companies, Sony, Microsoft, and Nintendo, are you bullish on any of them? What would it take for you to be interested in buying Nintendo? Where are these businesses?

Because the franchise of Nintendo is awesome. It always amazes me how they don't make money.

Hamilton: When I look at what I like to find in a company or a stock that I invest in, Nintendo's been a little bit slow. They're not leading for innovation. I see a lot more out there for companies that are.

It's in a tough spot. It's an extremely volatile stock, as we've seen. I would probably shy away from it. It's not Nathan Hamilton or Motley Fool sort of investing.

O'Reilly: Got it.

Hamilton: But Glu Mobile is probably ... not so much the opposite of it, but it's very much like any of the mobile gaming stocks -- Zynga (ZNGA), Glu Mobile, King (KING.DL) as well -- they're all over the place. They have one or two games that do pretty well, shoot up ...

O'Reilly: That's just a numbers game.

Hamilton: Yes. The question there is, can they be sustainable? With the Katy Perry edition and the Jenner sisters, maybe they can. But it's still going to be volatile.

Then Microsoft, they've got a new CEO coming in, changing things up quite a bit. If I had to pick? Probably Microsoft, but I'm not a Microsoft investor currently.

O'Reilly: Got it, OK. Very good. Thank you for your insights.

Hamilton: Absolutely.

O'Reilly: Let's go fire up the Atari!

Hamilton: Exactly!

O'Reilly: That is it for us, Fools. Before we go, I wanted to everybody aware, of our listeners, that a special offer is currently available for all Industry Focus listeners, for a subscription to Motley Fool's top performing Stock Advisor newsletter. Head over to focus.fool.com to learn more about this special offer.

As always, people on this program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against these stocks, so don't buy or sell anything based solely on what you hear on this program.

That's it for us, Fools. Thanks for listening, and Fool on!