Nintendo Stock-Forgotten but Probably the Best
I have always been a bit of a gamer. I slot into the video game ecosystem somewhere around the middle. I’ve played video games for pretty much my entire life, I usually play a few hours a week (five hours of Fortnite last night with two friends instead of talking to women for example), and I am pretty tapped into a diverse set of sources of knowledge. Basically, the video game industry is a field that I have a great vibe on. However, I have never felt the urge to invest in video game companies.
The video game industry exists on two poles.
You have software companies. These are companies like Ubisoft, Electronic Arts (EA), or Epic that makes video games like Assassin’s Creed (everyone has a different take on when it fell off, but I think it was after Unity), Madden (I hate Madden), or Fortnite (I have spent way too much money on Fortnite). These companies are either not open to invest in, Epic for example, or they do not look appetizing to me. Each of these companies competes in a super intense field, where it has become extremely difficult to differentiate, and I can tell you from personal experience, that these companies cut corners in the worst ways. EA for example shut down support for Battlefront 2 to spend millions making the tenth game in the Battlefield series that sucked, something I will literally never forgive them for because Battlefront 2 was awesome, and I don’t care what anyone says. Basically, unless you are a small indie developer, every consumer hates you as a game developer. Along with a myriad of other reasons, these software companies are not where it is at.
If one of the poles is software, then the other is obviously hardware. There are some much more famous names in this area of video games. Microsoft and PlayStation (owned by Sony) are the two largest console manufacturers (Xbox and PlayStation), but there is also a ton of gear like headsets, manufacturers for gaming PCs, and more. The investment case for Nvidia actually used to be that they made chips and graphic cards for super high-quality gaming computers, about four years ago. But frankly, this is another industry that I am not really too interested in. It is super hard for Xbox and PlayStation to differentiate themselves from each other without a massive CAPEX investment into console-exclusive games, video games that you can only play with an Xbox or only with a PlayStation.
Although, I do like that Microsoft, with all of that money, has been snatching up game studios, $70 billion for Activision, the owner of Call of Duty, Diablo, and Candy Crush (for the old people), and combining that with their hardware.
There is one company, a company that found its way into the title but not this article so far, that is differentiated in a way I do like. Nintendo is a video game manufacturer of some repute. You know Mario, Luigi, Bowser, Princess Peach, etc… You almost certainly remember the Mario movie recently that pulled in over $1 billion at the box office alone. Nintendo has some…dedicated fans to say the least. These guys are, no offense, psychos. I own a Switch, the most current Nintendo console, and I am above average at Mario Kart (10,000+ VR), but Nintendo fans are really into it.
Through some great properties and good games, they have left indelible, permanent marks on their fans through multiple decades. Three of the top four best-selling game consoles of all time are Nintendo consoles, and two of the best-selling ten games of all time are Nintendo games. Really though, you can’t understand how dedicated Nintendo fans are until you talk to one. The games are targeted towards younger audiences, but as I said, these games left such a mark on their consumers at a young age, that they continue to come back, like they were brainwashed or something.
So, I was a bit surprised when Nintendo announced they were releasing the Nintendo Switch 2 in a few months, and the stock slid 5%. The last console was literally one of the best-selling consoles of all time, making the company billions, especially when you factor in the 1.3 billion copies of games that were bought on the Switch. It was a bit revolutionary in that it could be handheld, or you could plug it into your TV. And obviously, it had all the Nintendo games that you could only play with the Switch. Just making a second one, about 8 years after the first one was released, seems like a total cash machine, and I think it will be.
Profits have slipped a bit over the past few years, after reaching a peak due to the Switch, because the Switch has been surpassed a bit. The formula, the hardware, should not be a problem. The Switch was the third best-selling console of all time, only surpassed by another Nintendo product from 20 years ago, and a truly revolutionary PlayStation console from 20 years ago. The success of this next era revolves solely around the games. One of the best-selling games of all time MarioKart 8 Deluxe (which again, I am goated at) will receive a flagship sequel with this next Switch, and other great games like Super Smash Bros. and Pokemon will also get sequels.
This is not a company for me, and not an industry for me, but if you are looking for a reliable 8%-10% annually over the coming five years regardless of economic head or tailwinds globally, domestically, whatever, Nintendo is the company for you.
