Stock markets and investing in shares can be a strange affair. Though business acumen and experience can go a long way, aspects of the process can resemble a casino; even just taking Nintendo as an example, the company's share prices soared in March 2015 when the partnership with DeNA and the existence of NX were revealed. The former was the big ticket deal talked about by investors, as it signalled that Nintendo was moving into the smart device market; it had been an ongoing demand from those with financial interests in the company.
The share prices - and therefore Nintendo's value - soared solely on potential, then, which is surprisingly common. In the internet age start-ups can be valued at hundreds of millions of dollars (or more) based on potential alone, before they even turn a real profit, as attention shifts to future monetisation of a concept. On the flipside share prices can drop drastically off the back of one set of underwhelming financial results or even an announcement that doesn't take investor's fancy. It's a capricious part of the world's economy.
As recently as November 2015 Nintendo saw approximately $4 billion slashed from its company value - about 9% - as a reaction, primarily, to the reveal and delay of Miitomo. The fact it wouldn't arrive in 2015 was one complaint, while investors and analysts seemingly lined up to highlight that it wasn't a Mario game, and therefore wasn't what they hoped to see. Again, we had share values spiking or drastically falling off the back of speculation and gut instinct, as opposed to actually seeing whether Nintendo knows what it's doing with the upcoming social app.
Though Nintendo's share price stabilised at the time, it's since continued to dip downwards, and at the time of writing it's sitting at 15,160 Yen (via Bloomberg), which is the lowest it's been since 16th March 2015, right before the DeNA deal saw the share value skyrocket. In the most recent day's trading in Tokyo it lost 1250 Yen per share, or about 7.6% of the company's value. Why was this? A report issued by Nomura Securities, one of Japan's leading financial services groups, shared a belief that the NX could launch as early as October, but the kicker was the assessment of its potential impact on the 3DS and Wii U markets.
Below are the comments from Junko Yamamura, an analyst from Nomura Securities.
We had previously thought that the NX launch would have only a limited impact on 3DS and Wii U sales as it is not being positioned as a successor to either console, but we have now altered our view because 3DS sales have been weakening a little recently, particularly in terms of software, as the machine enters its sixth year, and to factor in a harsher competitive climate and what happened to other existing consoles when new machines were launched in the past.
We still expect the NX to launch in 17/3. We have lowered our estimates for current consoles to reflect the present situation, fiercer competition, and what has happened in the past when new hardware is announced… We have reduced our operating profit forecasts for 16/3 by 5.7% and for 17/3–21/3 by 30.0–32.7%.
To clarify for those that interpret "NX to launch in 17/3" incorrectly as a date, that's referencing Q3 of the 2016 / 2017 financial year, which ties in with the 'October' estimate being given.
In any case, we still find it surprising that there's a perception of the NX existing - at a mainstream market level - alongside a notable 3DS and Wii U presence. We may not yet know the final form of the system, but the clear decline of 3DS sales and the continued limited success of the Wii U means Nintendo will need to direct its most vital resources into ensuring NX succeeds. Close followers of the company will already know this just from assessing trends in game announcements and future releases on the systems, and it seems to be common sense that Wii U and 3DS will fall back to 'last-gen' status when the new hardware arrives. As was the case with DS and then Wii in 2011 / 2012 there'll be some legacy sales, but their time as Nintendo's primary products will pass.
Yet that doesn't stop Nintendo's share value tumbling when this is stated out loud by a respected financial services group. It plays into the bizarre attitude the collective stock market takes - bet big on concepts that meet exacting demands, downvote anything else whether it's been released or not, and believe in evergreen sales despite all logic of the markets and technology sector. The reality is that the 3DS is getting old and the Wii U is still selling a long way below the numbers of its rivals - the idea of NX supplanting the systems and cutting into their sales should not be a surprise.
It's understandable for fans, meanwhile, to want their current systems to be at the forefront for as long as possible; that's especially understandable with the still-young Wii U. Yet let's look at cold facts, and why Nintendo needs to move forward with a new product to help return it to handsome profitability. Below are Nintendo's own numbers that show the continual drop in demand for 3DS, and the ongoing flatline at low levels of the Wii U.
3DS Hardware Sales, per Year
2010 / 2011 - 3.61 million units (accounts only for a brief launch window of one month in Japan, one week elsewhere)
2011 / 2012 - 13.53 million units
2012 / 2013 - 13.95 million units
2013 / 2014 - 12.24 million units
2014 / 2015 - 8.73 million units
2015 / 2016 (6 months) - 2.28 million units, Nintendo is targeting 7.6 million units for the full financial year.
Wii U Hardware Sales, per Year
2012 / 2013 - 3.45 million units (accounts for launch window of November 2012 to end of March 2014)
2013 / 2014 - 2.72 million units
2014 / 2015 - 3.38 million units
2015 / 2016 (6 months) - 1.19 million units, Nintendo is targeting 3.4 million units for the full financial year.
The Nomura Securities report also talks about declining software sales, so let's also put that into numbers.
3DS Software Sales, per Year ('New Titles' varies per region)
2010 / 2011 - 9.43 million units with 20-21 'new titles' (accounts only for a brief launch window of one month in Japan, one week elsewhere)
2011 / 2012 - 36 million units with 86-92 'new titles'
2012 / 2013 - 49.61 million units with 77-97 'new titles'
2013 / 2014 - 67.89 million units with 89-129 'new titles'
2014 / 2015 - 62.74 million units with 78-101 'new titles'
2015 / 2016 (6 months) - 19.2 million units with 29-50 'new titles' , Nintendo is targeting 56 million units for the full financial year.
Wii U Software Sales, per Year ('New Titles' varies per region)
2012 / 2013 - 13.42 million units with 20-44 'new titles' (accounts for launch window of November 2012 to end of March 2014)
2013 / 2014 - 18.86 million units with 30-50 'new titles'
2014 / 2015 - 24.4 million units with 25-30 'new titles'
2015 / 2016 (6 months) - 12.37 million units with 10-16 'new titles' , Nintendo is targeting 23 million units for the full financial year.
These are all figures that have been available since late October 2015, and show us clear declines, particularly with the 3DS. It's worth noting, too, that the portable family is still on a downward trend despite the excellent New 3DS models arriving in Japan and Australia in late 2014, and then Europe / North America in February 2015. They are still, for our money, impressive results for the system considering the market in which it finds itself and its increasingly limited capabilities, but numbers are nevertheless dropping.
As for Wii U, there's some minor growth and a levelling out for the coming year, with the system seemingly having a festive upturn in general sales based on Media Create figures from Japan and limited evidence in North America. Even so, let's be blunt - those Wii U numbers are not good, and will never be perceived as such. We may admire the system and some of its terrific games and feel that it's not had the sales and popularity it deserves, but the figures don't lie. It's a hardware release that simply hasn't delivered for Nintendo, and is unlikely to get even close to matching the momentum of PS4 and Xbox One - especially in the West - with which it's supposed to be fighting for shelf space.
With all of that in mind, the idea that the two current-gen systems will happily and successfully co-exist on the market - where retail space is more limited and competitive than ever - has always seemed rather fanciful. The 3DS may have a bit of long tail into 2017, but retailers (and a small number of remaining developers) will likely drop the Wii U once the NX is revealed. Whatever form the hardware takes - whether it's a hybrid of home and portable gaming, or something entirely different - it'll need to be the main show in town for Nintendo.
The comments of Junko Yamamura regarding the Nomura Securities aren't the prompt for this article; they've done their job in looking optimistically at the market and then adjusting expectations. What frustrates is that investors and even some fans behave as if it's a surprise. As if Nintendo was going to keep three systems ticking along into 2017 and beyond. It makes no sense for the company to do that; we suspect the Wii U is already in the process of being wound down to minimal levels, while the 3DS will likely be catered to beyond this year as a budget device. Neither system has the sales or momentum to justify any effort beyond that.
Whatever the NX is, we'll need to get used to it; it won't share much of the stage with Wii U or 3DS.