While most investors have written off Nintendo Co., Ltd.'s (TYO:7974) mobile game business, Jefferies' recent meeting with Nintendo management has convinced it that if anything, Nintendo is doubling down on the mobile game business while making prudent changes to its mobile game plan. Also, look out for Pokémon Go relaunch and revenue rankings. BUY.
Nintendo manages its business with a long-term approach, rather than trying to meet quarterly numbers. There are times when the market is disappointed with Nintendo's speed and lack of execution in the short-term and the stock ends up being volatile. But in the long-term, Jefferies believes this is the one stock in its coverage that offers a multi-bagged opportunity (it is only reiterating what it has believed and written in in July 2013 initiation report [Stage is Set...Initiate at Buy] when stock was at Y11,500; last year mid-June after E3 when stock fell below Y15K [Market Drop Pulls Nintendo Below ¥15K; The firm Sees Compelling Risk-Reward]; and recently when it was Y25K [Switch and Mobile to Drive Upward Earnings Revision Cycle after 27-Apr]).
Learning from its experiences of the last 6 months, Nintendo mobile game plan is changing / evolving (and will continue to evolve over next 2-3 years as it learns more): While most of the investors (Jefferies meets on a recent roadshow) believed that Nintendo is slowing down / dialing down on mobile games), the firm's meeting with Nintendo management convinced it that Nintendo is all the more committed to mobile-games.
With Pokémon Go, TPC and Niantic had a huge hit on their hands in July last year. But they also have taken time to evolve the game. It was relaunched last week. The latest update includes: gym features significantly updated to add the all-new motivation system; added new Gym Badge feature; added Raid Battles, a new cooperative gameplay experience. It may not reach the viral proportions, but the firm recommends investors keep a close eye on the revenue rankings of this game to see how these companies are learning and evolving. It will be a huge mistake to write off Nintendo's IP. That is the real value. That is the treasure trove.
This is the only stock in Jefferies' coverage where Jefferies believes there is potential of a multi-bagger. The firm's PT based on FY3/18 earnings is Y57.5K (based on FY3/19 numbers, it would be Y77k). The firm expects Nintendo's FY3/20 OP to exceed previous highs, and in anticipation it expects the stock price to exceed its previous highs of Y73K ahead of the earnings peek. Jefferies currently assumes only one new game launch in Fy3/18 and FY3/19 (as compared to management guidance of 2-3 games per year). There is upside to Jefferies' forecasts. The firm's long-view note highlights the upside scenario where the firm sees a PT of Y110,000.