The Metaverse is so hot, don’t forget Nintendo

The prospects related to Metaverse have not yet been reflected in Nintendo’s stock price.

Video games ushered in a renaissance during the COVID-19 pandemic, but the original players in the industry have been left behind. Nintendo’s (NTDOY) American Depositary Receipts fell 29% in 2021. 

The Metaverse is so hot, don't forget Nintendo

The Japanese video game giant is still making games that are beloved by fans, but investors spend most of this year looking for companies that have made major commitments to “Metaverse.” (The metaverse refers to the virtual world that enables social interaction and business.) This has driven the stocks of companies such as Roblox (RBLX) and Nvidia (NVDA) to rise sharply this year. Roblox is a company that provides gamers with tools to create online worlds. At a recent investor meeting, it mentioned “metaverse” 17 times. 

Roblox’s share price has risen 160% since its direct listing in March. The company is facing years of annual losses. The current market-to-sales ratio is 21 times based on next year’s sales, while Nintendo’s is only 3.5 times. 

At the same time, Nintendo’s development strategy is still very conservative. In a 48-page profit report last month, it did not mention Metaverse, despite the hit game “Assembly!” “Animal Crossing Friends” itself is a mini Metaverse. 

This game has virtual currency, clothing and online features. Players can interact with friends on the tropical island that they have built. Since its release in March 2020, the game has sold nearly 35 million units. 

However, the prospects related to Metaverse have not yet been reflected in Nintendo’s stock price. Wall Street predicts that in the 2022 fiscal year ending in March next year, Nintendo’s American Depository Receipts’ earnings per share will be $3.74, down from $4.64 in fiscal 2021. Sales are expected to fall from $16.2 billion to $14.5 billion. Supply chain issues and semiconductor shortages are part of the reason for the expected decline, which will be the first decline in six years. 

The Metaverse is so hot, don't forget Nintendo

Wedbush Securities analyst Michael Pachter said that he believes that the market will not see a decline in demand for the Nintendo Switch console, which has sold about 93 million units since its launch in 2017 . The device allows players to play games in handheld mode and via TV. In October of this year, Nintendo launched a higher-priced model equipped with a clearer OLED screen. 

Pachter said: “This year’s sales will decline and will not meet the initial forecast for Switch sales, but this is completely a supply chain problem. Switch still has a strong market, go to eBay to find a Switch, their price is far Above the retail price.” 

At the end of October, Pachter upgraded Nintendo’s stock rating from “Neutral” to “Outperform.” He said that recently released games and a large number of upcoming products may make consumers and investors excited about Nintendo again. Next year, Nintendo will launch the strongest games in years, including new versions of the “Legend of Zelda” and “Pokemon” series. 

New games may bring new impetus to the Switch and help Nintendo exceed Wall Street’s lower expectations. 

The recent price of Nintendo’s US-listed stock is $57, and the P/E ratio calculated based on the expected return in the next 12 months is 15 times, which is far lower than the five-year average of 23 times. 

After several years of complaints on Wall Street, Nintendo finally began to take measures to meet the needs of investors and gamers. “Mario and His Friends”, dubbed by Chris Pratt and star-studded in a supporting cast, will be on the big screen next year. At the same time, Comcast (CMCSA) is planning the expansion of a Mario-themed American theme park. 

Most importantly, Nintendo started to make money in a more common way through its subscription service-Nintendo Switch Online, which is the favorite way for investors. 

Mario Stefanidis, vice president of research at Roundhill Investments, said: “Switch has become a phenomenon, and many different people are paying attention to it. Nintendo has never done so well.” 

Nintendo currently has a weight of approximately 0.5% in the Roundhill Ball MetaverseETF (META). The stocks with the largest holdings of this ETF are Nvidia and Roblox, with weights of 11.2% and 9.7%, respectively. 

There are reasons for investors to show some skepticism towards Nintendo. Compared with other video game giants, the company has made slow progress in mobile games, free games, and online games and e-sports. 

This means that Nintendo still missed a huge opportunity. Nick Grous, an analyst at Cathie Wood’s Ark Invest, estimates that in 2021, the global video game business will reach $200 billion, of which mobile games account for about half. 

Therefore, Nintendo still has a chance to win in the field of mobile games. 

Grus said: “For more than 20 years, hundreds of millions of people have been familiar with Nintendo’s roles. This is a huge value, especially as we continue to spend more time online and continue to advance these virtual worlds. This is I think Nintendo will stand out from other game publishers.” 

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