Nintendo (NASDAQOTH:NTDOY) is in a tricky spot. The company's business structure is built around hardware sales, but its latest home console has been a big underperformer and the dedicated handheld market is quickly being eroded by the rise of mobile. Sales of Nintendo gaming platforms are experiencing a huge contraction compared to the last hardware cycle, which also means that the company is facing a smaller addressable market for its software. Making matters worse, third-party developers and publishers are not providing Nintendo's platforms with healthy levels of support.
Setting all of that doom and gloom temporarily aside, Nintendo has a history of resilience. As the world's oldest and largest maker of video games, the company has shocked doubters before. It's also in the midst of a coordinated comeback effort. Here are five reasons to be optimistic about the future of Nintendo:
Mario Kart 8
The latest entry in the Mario Kart series sold more than 1.2 million copies within three days of its release, meaning that approximately 18% of Wii U owners rushed out to pick up the game in that time period. The performance is strong enough to make Mario Kart 8 the fastest selling game on the system.
While sales of the title are undeniably impressive, its content may be an even more positive indicator for Nintendo's future. The company admitted to having difficulties making the transition to HD development, but Mario Kart 8 signals that its developers are coming to grips with the switch. The quality of the game's online play is also a huge step up for Nintendo.
Nintendo's E3 Presence
Nintendo put together an impressive showing for this year's E3 show. While the company opted not to have a live stage show, the format of this Nintendo's "Digital Event" was a big success. The comedic elements, pacing, and production of the show suggest that Nintendo is making strides with regards to image and brand management.
In addition to its Digital Event, Nintendo also hosted a successful segment called "Treehouse," in which upcoming games received a more in depth focus. Nintendo's presence at this year's E3 was a huge step up from what it put forth last year.
Nintendo is finally embracing downloadable content and online revenue generators
Not long ago, Nintendo released its first paid downloadable content expansion, a series of characters and levels for 3DS game Mario Kart: World Tour. Other game company's have been generating great margins selling content online, and the practice represents a major opportunity for Nintendo. Combined with the amiibo figurines, it's clear that the company is looking to modernize its software model and generate ongoing revenue after the initial product sale.
Amiibo Near Field Communication toys
Activion Blizzard and Disney have already found success with their respective Near Field Communication toy efforts, and Nintendo has the fantastic cast of characters needed to build a successful figurine business. The amiibo toys will see their first gaming application with the release of Super Smash Bros. for the Wii U.
With the gaming hardware landscape looking uncertain, Nintendo needs to create additional revenue streams. The amiibo project is a step in the right direction and could turn into a major success with the right handling.
Quality of Life
Nintendo's mysterious "Quality of Life" project made no appearance at this year's E3, but the absence wasn't surprising. The expo is primarily a gaming event, and Nintendo has indicated that its QOL ventures are a move in a different direction. The company's gaming business is facing worrying conditions, and new health-based initiatives represent a means of diversifying the company and expanding the brand.
Nintendo's greatest success came when it reached an expanded audience with its DS handheld and Wii console. Software such as Brain Training and Wii Fit have been put forth as indications of the avenues the QOL project might venture down. If Nintendo can successfully introduce another pillar for its business, its outlook should improve substantially.
Will these positive elements be enough?
Nintendo employs some of the best minds in the gaming industry and has access to an incredible array of IPs. The company has the potential to make a comeback, but a return to former glories is heavily dependent on whether or not the company's big gambles pay off. There's no denying that Nintendo's hardware business is in trouble. Rapid and prescient action will be needed in order to preserve the company's business. It's clear that Nintendo is taking steps in the right direction, but there is very little room for error at this point.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. 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.