Nintendo has taken the opportunity with its annual financial results to make some notable business moves, even if they're little to do with the games we get to play or the systems we own. In addition to a planned share buyback, the company has announced a major shift to its shares / stock structure with a '10-to-1' split.
First of all, let's look at what that means. On 30th September Nintendo will 'split' every share into 10; so, if you own 10 shares in the company they will become 100 shares. The overall picture means that Nintendo will go from having an approved issuing of 400 million shares up to four billion, multiplying by 10.
To clarify, this will not automatically improve the value of stock or individual shares - for example if you have a share valued at $100, after a split like this you will instead have ten shares valued at $10 each.
Nintendo has given the following reason for this move:
To reduce the minimum investment price through the stock split, thereby increasing the liquidity of the Company's shares and further expanding the Company's investor base.
Interestingly, this is a move that is typically undertaken to both please current investors (some have been calling for Nintendo to do this for some time) and as a response to a particularly strong position. The better a company's performance, the higher the share price, with the flipside that this can then slow down and restrict trading, making it harder for smaller investors in particular. Nintendo's closing price on 10th May in the Tokyo stock exchange is 56,360 Yen, which is approximately $433USD per share. Following this split in 30th September, the price of one share would instead be around $43.
Investopedia highlights the following benefits and motivations for a move like this:
Increasing the liquidity of a stock makes trading in the stock easier for buyers and sellers. Liquidity lets traders and investors buy and sell shares in the company without too great an effect on the share price. That can help companies repurchase their shares at a lower cost, since their orders would not move up the share price of a more liquid stock as much. For some companies, this can mean significant savings.
While a split, in theory, should have no effect on a stock's price, it often results in renewed investor interest, which can have a positive effect on the stock price. While this effect may wane over time, stock splits by blue-chip companies are a bullish signal for investors.
It's certainly a move typically utilised by sizeable and successful corporations. For example Walmart has had multiple stock splits over the years, and SpaceX confirmed a similar 10-to-1 split earlier this year.
As for the reason and timing of this announcement, Libra Investments chief investment officer Yasuo Sakuma has suggested to Bloomberg [paywall] that it provides a boost to investors against a backdrop of lower projected sales and profits for the coming year.
The stock split plan would be obviously a boost. I’m just surprised that Nintendo announced a stock-split after having resisted it for such a long time.
An interesting move, then, and it'll be intriguing to see what impact it has once it's completed on 30th September.
Not too surprising a move.
Nintendo's share price peaked at 66K yen back during the early Wii days, and it has peaked twice at almost the exact same price within the last two years.
This means Nintendo's total market cap is reaching a limit, unless more shares are issued. That might hurt share price, however, and wouldn't offer liquidity to shareholders that bought at a fifth of the current price back in 2012.
Ultimately, Nintendo want their shares distributed on as many people as possible, for a handful of reasons, and (and this is classic for them) they want greater freedom to buy back shares at reasonable prices when the market dips, and use them as payment in mergers and acquisitions when the price is up.
In the end, a stock split would accomplish both while also offering the potential of reaching new heights in total company value.
These bits are where Tom’s work shines for me (because I’ve no clue about financials)
How big is their market value at this point?
Tallied at the start of this month to about $50 billion.
It'll be very interesting to see how dividend payouts get impacted by this. If I have 10 shares today after the split I'd own 100 shares. Dividends get paid out per share so could turn out to be a nice passive income.
A lot of tech companies have issued stock splits in their corporate actions reports. Amazon, Nvidia, Google and Tesla all in the past 1-2 years.
Dividend payouts are divided by the total number of shares, so these wouldn't be affected at all. :v
But your 100 shares could potentially rise in value a good deal faster than your 10 shares would.
Makes sense to me, Nintendo seems like the perfect "gift stock" to me for kids but not at nearly $500 a share. I'm tempted now to pick up a share for $500 just to have the 10 when it splits only I've never invested before so a Japanese stock seems a bad place to start.
@NinChocolate When they announced TW was back this was one of the things I was most looking forward to, NL didn't really cover this in depth during his years long absence.
Hmm I see, thanks for the lesson professor. I'd never heard of such a thing before but numbers are hard.
It’s cute when Nintendo Life thinks they know about how stocks work. They’d be jumping for joy for the other two platforms and taking a dump on Nintendo. Change the name on the site!
If you are thinking about investing in Nintendo, I'd say... wait. Nintendo stock has followed a pretty rigid generational cycle that is influenced by their console performance.
Their consoles fall into two categories. Revolutionary (disruptive) and Evolutionary (iterative). Start from the beginning:
NES: Revolutionary (Resurrects home console industry. Sparks a phenomenon.)
SNES: Evolutionary (Builds/rides on NES success with enhanced graphics and sound.)
N64: Revolutionary (Ushers in 3D era. Implements joystick control.)
GameCube: Evolutionary (Builds on 3D tech with enhanced graphics and sound.)
Wii: Revolutionary (Introduces motion control.)
Wii U: Evolutionary (Attempts to build/ride on success of Wii, adding asymmetric gameplay while retaining motion control capability. Enhanced graphics and sound.)
Switch: Revolutionary (Combines home and portable ecosystem for continuous gameplay, eliminating traditional separation of game types.)
Next System: ?
If history serves, we are due for an evolution/enhancement of the Switch concept.
Each time Nintendo innovates, thereby disrupting the market, their stock skyrockets. Their lowest ebbs have come during the thick of their iterative eras. With stocks you want to buy low (and build a profit as they rise), and sell high. Nintendo is currently peaking. There is a chance that potential success of the upcoming Mario film and Universal Park tie-ins will cause their stock to increase further. But the better tactic would be to wait until their stock dips back down towards the middle of their next console generation, then watch it escalate when they enter 'Revorution' mode again.
But please understand... I am not a financial advisor. Talk to an expert before investing!
@rjejr I'm waiting for the limited edition stocks. Hopefully in purple.
@NEStalgia Do paper stocks even exist anymore? Well maybe they can make the pdf purple.
@rjejr That's the future of gaming. Limited edition NFT stock purchases in-game. Want to control the map? Click the eShop button to purchase NFT tradeable stock options. Only 200,000 stocks required to own the map and destroy your enemies! Just $124 (▼2.34) each!
Limited purple edition, get an NFT stock with purple Pikmin certificate PDF while supplies last (must purchase by 7/16, purple PDF includes $15 surcharge, NFT stock traded at market value $124+/- (PKMN - NSDQ)
@NEStalgia I don't think I like the future. 😉
@rjejr I don't even like the present.
Issuing more shares (or any share action, really) is far more complex in Japan then it is in most other markets because changes in ownership stakes can be easily opposed by any member of the board or any number of others listed on the (equivalent to) articles of incorporation, and the legislative options to block sales or move shares to non-voting status are more plentiful.
So in addition to all the reasons you've given, without a massive shake up and drafting new governing documents, a stock split is just about the most dramatic tool they have.
I was looking into buying Nintendo stock last year, but with there being a minimum 100 stock purchase (at least on Rakuten) I couldn't afford the over ¥4,000,000 minimum stock purchase. But if this goes down by 1/10 then I would seriously consider it again (after checking if it's actually a suitable time to invest our not in Nintendo).
... Limited edition, or special series stock issues are hundreds of years old.
They use a limited time offer of improved dividend yield or extra voting power to encourage investment. Look up something like "series A special" for any blue chip company.
And ALL stocks are limited edition. I think you could benefit from some reading on what an NFT actual is. If there was such a thing as a fungible stock, that would kinda be an issue. The stock market has exchanging NFTs all the way back to when they were literally trading blocks of wood with each other.
I did not know that, thank you for flexing your knowledge of Japanese financial policy!
They said I was crazy for buying all that stock when the Wii U came out and everybody dumped their stock.
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