There hasn't been a lot of winning for Japanese gaming giant Nintendo (NTDOY -0.33%) these days. The stock hit its lowest level in nearly three years this month. Revenue declined in fiscal 2022 after four years of healthy gains, and that top-line growth has been negative through the first nine months of the current fiscal year.
Nintendo offers a decent dividend yield and a history dating back to the late 1800s, but it's easy to see why the market has forgotten about the company given its recent financial performance. I don't see it that way. I feel that Nintendo is heading into an exciting phase in its life cycle, so I bought some shares last week. There are three major potential catalysts coming. As Mario would say, let's a-go.
1. Let's go to the movies
Comcast's (CMCSA -0.37%) Universal Studios is putting out a new Mario movie next month. The Super Mario Bros. Movie hits a multiplex near you on April 5. It's been 30 years since the original live-action movie came out, and this one promises to be far more mainstream, relevant, and, ideally, timeless.
Purely animated this time, it's voiced by an all-star cast with Chris Pratt as Mario, Charlie Day as Luigi, Anya Taylor-Joy as Princess Peach, and Jack Black as Bowser. It's going to be huge. The trailer tosses a wide net. It will appeal to the young as well as the nostalgic, with a blend of action and humor to keep kids, their parents, and even their 8-bit-playing grandparents interested.
A hit movie isn't just a one-time pop from ticket sales and eventual retail and digital distribution. It's going to be bank for Nintendo in terms of merchandising come Halloween and the holidays later this year.
Image source: Comcast.
2. Let's go for a ride
The second catalyst is already getting revved up, and it once again pairs Nintendo up with Comcast. The two companies announced plans to open Super Nintendo World at Comcast's Universal Studios theme parks several years ago. The first one finally opened in Japan in 2021, as the pandemic was still raging. The second one opened in California last month. Florida and Singapore will debut their iterations come 2025.
I checked out Super Nintendo World at Universal Studios Hollywood last week. It's the smallest of the four planned experiences, but even on a school day during the park's slow season it was crowded with Nintendo enthusiasts. Nearly everyone was paying $40 for a Power-Up Band, which is essential to unlock keys and collect coins throughout the compact area. The line for the signature Mario Kart: Bowser's Challenge ride was as long as three hours. Gift shop checkout lines were huge.
Super Nintendo World has been open for less a month in California. The novelty of it all will draw crowds, but there's clearly lasting power with this multigenerational franchise. Just wait until a much larger version with even more rides and experiences opens at Comcast's Epic Universe theme park when it debuts in 2025.
3. Let's play
At its heart, Nintendo obviously isn't about movies or theme park lands. Those are just ambassadorial moves. Nintendo is all about gaming, dating to its 1889 roots as a maker of playing cards. It's a video game stock. Here's where the real untold story is waiting to play out. Check out this timeline.
- 2006: Wii is introduced
- 2012: Wii U is introduced
- 2017: Nintendo Switch is introduced
When Nintendo puts out a new gaming system it's not just phoning it in. This isn't like its rivals Xbox and PlayStation that simply bump up the specs every few years. The Wii U was radically different than the Wii, just as the Switch made the fresh console portable in a bar-raising manner.
Check the years. It's been gaps of five and six years between new console releases. The Switch came out six years ago. It's fair to say that we're due for a new platform.
A new console isn't just a one-time holiday pop. In fact, each generation sees its sales peak about three years after its release when the pipeline of games optimized for the system is gushing.
Nintendo itself is compelling. Its $44 billion market cap is deceptive. Its debt-free balance sheet is flush with nearly $13 billion in cash, pushing its enterprise value down to $31 billion and its trailing earnings multiple lower than the 13 that is being reported. In a climate of rising rates, these are the gold stars worth collecting. The market doesn't see Nintendo on the starting line right now. Just wait for the photo finish at the end of the race.
