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Congratulations to Sony: the only Tokyo large-cap still up 100 per cent year to date, and helped this week by buzz surrounding its new games console. Brickbats then to Nintendo, its gaming rival languishing near the other end of the Topix 100 with a mere 3 per cent gain. One of the reasons for Nintendo going nowhere is a fear that Super Mario, Donkey Kong, Princess Zelda and the Pokemon crew are not either as it ignores smartphone gaming. Does that make its stock mispriced or management misguided? Or – deep breath here – is it a takeover target?
Take out Nintendo's 900-billion yen ($9.7-billion) net cash pile and you have a gamer with an enterprise value of 332-billion yen. Then look at the success of smartphone-focused games makers and wonder what might happen if Nintendo allowed Mario and friends out of its closed system. Take GungHo, whose profits doubled last quarter on the back of in-game purchases from one hit, Puzzle & Dragons. The bull case for Nintendo as is, is that it could yet put some of its games on smartphones. But unfortunately for the bulls, the other side of that argument was laid out this week by Satoru Iwata, Nintendo's president, who dismissed smartphones as a short-term gaming money-spinner that would destroy long-term value. Nintendo's sales are split three-fifths hardware, two-fifths software. Understandably it wants its games to push hardware sales. But the smartphone market, and related gaming, is only going to grow.
Nintendo shares are held about one-third in Japan, including a tenth by Hiroshi Yamauchi, its former president, making a bid tough. But a further two-fifths appear to be in the hands of big U.S. investors. Sure, corporate Japan is littered with the corpses of outsiders who have tried to change Japanese companies. But if there were a reasonably-sized company with valuable assets worth a tilt, it would be Nintendo.
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