It's now been over a month since Nintendo and DeNA announced their major corporate partnership, with one relatively short presentation blowing away the big N's apparent reticence and minimalist approach to bringing games to smart devices. The announcement brought a marked shift in strategy - we went from expecting a Mii-based app that would encourage people to buy Nintendo systems to a deal that will bring us multiple Nintendo games on phones and tablets. No IP is off the table, and it'll be fascinating to see what the partnership with DeNA will yield.
It's no secret that a number of investors and shareholders had been wishing for Nintendo to take the leap into smart devices for some time - though the iOS and Android markets (in particular) are growing in the West, revenues have been especially buoyant in Japan. Square Enix, Capcom, Sega, Level-5 and more developers and publishers in the country have been aggressively expanding their offerings on these platforms, and a number of people felt that Nintendo was lagging behind.
The announcement had a predictable side-effect, then, as Nintendo and DeNA share prices skyrocketed on the Tokyo Stock exchange. Though still well down on the glory days of the Wii and DS, Nintendo suddenly saw its company value jump by a reported $6 billion in just a couple of days. This is off the back of an investor's presentation and mere potential, remember, not any firm details.
You can see the extent of this jump below, but what intrigued us today - yes, your humble writer's rather nerdy about these things - is the fact that Nintendo's share value has actually held up while also slowly increasing further. You can see the monthly graph showing that slow climb, and the yearly line that shows a sharp jump that accompanied the DeNA reveal - all data via Bloomberg.
While we're hardly stock market experts here at Nintendo Life, we're a little surprised that the price hasn't started to fall away a little, settling on a more modest increase. Nintendo did, after all, reveal very little beyond the fact it's bringing games to mobile platforms, and the consensus within the financial media was that boosts in share price were more about DeNA than the early announcement of the 'NX' platform. With so little said, what exactly is breeding this investor confidence?
There were voices of caution shortly after this spike, reflecting the reality that bold ambitions for smart devices don't always easily convert into handsome profits. Published a month ago on Bloomberg, some investors were urging caution. Hideki Yasuda, a Tokyo-based analyst at Ace Research Institute, said the following:
This is an extremely difficult market that calls for a very different business mode. Investors' expectations for massive short-term profits are causing the shares to overheat.
Similar warnings came from SMBC Nikko's Maeda.
Whenever there is a surprise announcement, the valuations tend to stretch a bit. At this point, it's too difficult to tell if people's expectations are overshooting or this could really help take profit beyond 100 billion yen in the next two to three years.
Of course, Nintendo and DeNA are talking up their prospects, with DeNA talking about potential revenue of around $25 million a month. Yet we're dealing in so many unknowns; will Nintendo be able to sustain its existing console businesses to the levels needed, and will it even successfully monetise smart device apps and games? We mentioned a number of companies in this article's opening that have gone big on mobile, but results are often mixed. The iOS and Android markets are so crowded, with prices that have raced to the bottom, that an app needs to go viral to make serious money. Of course Nintendo can achieve this, but other huge brands have expected levels of success that have proven to be fleeting or non-existent. Smart devices are truly a Wild West of unpredictability.
Yet, despite the lack of detail and such uncertainties, we haven't seen Nintendo's share value settle down to nearer its pre-DeNA level. While that's a positive for Satoru Iwata and his management colleagues, it brings pressure - the company is clearly expected to move towards 'Nintendo-level' profits. In other words, profits that prompt images of happy investors rolling around in mounds of cash, or diving into a sea of golden coins in true DuckTales style. Until the 3DS and then the Wii U era, Nintendo was wallowing in more cash every year; clearly, some want a return to days that, if not quite that grand, will nevertheless boost some bank balances.
With that in mind, Nintendo's upcoming end-of-year financial reports will be absolutely fascinating - no, really, they will. We'll gain a sense of how much money Nintendo thinks it can make in the next year, with smart device revenues no doubt playing a part. They'll also tell us much about the ambitions for Wii U and 3DS. Last May we wondered how on Earth Nintendo planned to shift 12 million 3DS systems based on the trends of the time - yes, it'll miss those targets, but it pointed to the fact that the New Nintendo 3DS was coming, even if we were all oblivious. There'll be plenty of clues to consider in Nintendo's projections.
As a result we'll gain a sense of the company's confidence in upcoming smart device content. We've been told to expect multiple arrivals in 2015, so we're no longer gazing into a distant future; in the next eight months we should have played Nintendo's first smart device games and / or general apps, while we'll have a cross-platform Club Nintendo replacement to ponder. It's exciting but also a little daunting.
Based on steady trading of the past month, those with money to invest clearly believe Nintendo has good times coming. We'll see how that optimism holds after Nintendo's annual financial reports on 7th May; the perspective you hold today is somewhat a matter of faith. Your glass is either half-full and you believe investors know a good thing when they see it, or there could be concerns that - not for the first time in recent years - Nintendo could set bold goals and fall short.
No pressure, Iwata-san.