Nintendo: Global Leader in the Booming Video Game Industry

Joshua Kennedy presented his in-depth investment thesis on Nintendo (Japan: 7974) at Best Ideas 2016.

Nintendo is a global leader in the booming video game industry, with a long history of innovation in both hardware and software in what has become a mainstream, arguably dominant entertainment category. Today, as with other moments in Nintendo’s storied history, the company stands at a pivotal crossroads. Only eight years removed from the peak of its biggest-ever hardware hit product, Nintendo is contemplating a future in which its core business model — selling software made exclusively for its own hardware — may be a thing of the past. In this context, Nintendo carries a balance sheet with half its market cap in net cash and investments and owns the most valuable intellectual property in the video game business. The company trades for an EV-to-revenue multiple of 2.5, about half the multiples of software-only peers of comparable size, despite a depressed sales level. With 2.5 billion smartphone users in the world, the greatest video game maker of all is about to enter an arena an order of magnitude larger than any in which it has ever played. Why then is Nintendo valued as if it has no future?

About the instructor:

Joshua Kennedy is Managing Partner of Sonian Capital Management, a long/short global value manager based in Boston. He previously served as Portfolio Manager at Liberty Square Asset Management and began his career on the news staff of The Wall Street Journal. He holds a BA in Religious Studies from Brown University and an MBA with concentrations in accounting and finance from New York University’s Stern School of Business.

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