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Nintendo is one of the three biggest video games producers globally and the creator of the modern video games industry. It has been selling more than 4.4 billion video games and more than 693 million hardware units globally since 1985, the year in which it introduced “Nintendo Entertainment System” (NES), opening the console game market, (Nintendo, 2016).

Not long after in 1989, Nintendo introduced the Game Boy, which was the first portable, handheld game system, becoming the most profitable console ever selling over 300.000 units in two weeks, (Villapaz, 2014). In 1998, they upgraded to Game Boy Colour transforming the life of interactive entertainment into a completely new adventure.

Nintendo’s performance has been fluctuating over the past 2 decades in particularly after 2006 up to present. The sharp decline of its share prices in 2008 and its following stagnation had a substantial negative impact on investors’ confidence (See appendix 1).

It was only in 2016, following the release of the Pokémon Go game that: “Nintendo shares up 53% as investors try to catch ‘em all” (Farell, 2016).


One of the main factors that affect the Japanese market is the Yen exchange rate. As it can be seen from the charts below the average rate between 2006 and 2016 has been oscillating between 121,018333 and 79,714167.

Source: SNL

Given that Nintendo’s main revenue originates from the US, depreciation in the USD against the Yen implies a decrease in the sales value in USD. Specifically, in 2011 the company suffered its first loss after 30 years due to the exchange rate fluctuations (Fujimura and Horie, 2011). From 2009, US real GDP growth collapsed to -2.78%, after that GDP rebounded to 2.53% in 2010. In addition, over the same period real personal disposable income, while declining by 0.41% sharply rebounded to 2.5% in 2010. This could have offset the effect of the negative impact of the appreciation of the YEN.

Source: Bloomberg

Related to the stronger Yen the pricing strategies of Japanese market has been changing for the past few years showed by movement of the Corporate Goods Price Index (CGPI). The index, also known as the producer price index (PPI), shows variations in the supply side of prices within the Japanese economy (Japan Macro Advisors, 2016).

Source: SNL

The appreciation of the Yen had an impact on export prices, which directly translate into a decline in the PPI. In August 2016 the PPI fell by approximately 3.4% from the previous year (SNL, 2016).

Another sales’ driver is the Japanese GDP growth associated with private consumption growth.

The diagram shows that especially between 2008 and 2009 the negative growth of real GDP matches the negative growth in private consumption, which led to a decrease of 95.5bn Japanese Yen in private consumption.

Source: SNL


Nintendo belongs to the consumer electronic industry since it derives most of its revenue from it. More precisely 22.45% is originated from handheld consoles, 20.30% from video game consoles and 10.30% from other video game equipment’s. At the same time, Nintendo from a broader prospective falls within the technology sector, which currently stands at a growth stage.

Source: Bloomberg

On a global stage, the technological industry operates in a constantly changing environment; hence there is a constant need for innovation, resulting in the barriers to entry constantly decreasing, this can be observed with the creation of 177 “tech unicorn” companies since 2009. Therefore, as competition intensifies, major player such as Nintendo are required to keep innovating and diversifying in order to survive, this can be shown with the shift in Nintendo’s strategy to enter the “app” market, such as with the launch of Pokémon Go and Mario on smart devices.

This trend in the technological industry can be observed in the video game industry, which has drastically changed through the years, moving from an experimental activity to a mainstream one. According to Newzoo (2016), the gaming industry generated approximately $91.8 billion in 2015 and is expected to grow 6.6% per year, reaching $118.6 billion by 2019. The main segments within the gaming industry have been smartphone, TV and consoles, and PC. As of 2015, TV and consoles have had the lion’s share of the market. It is however expected that by 2016, the mobile gaming segment will take the edge with an increase of 21.3% globally (Newzoo, 2016).

Source: Newzoo

With regards to geographical categorisation of the market, Asia-Pacific contributes the largest share, with expected revenue of $46.6 billion in 2016. It represents around 47% of total global games revenues, with China accounting for half of it ($24.4 bn).

China’s games market having only entered its growth phase, is expected to drive the growth in the coming years.

The video gaming industry currently is investing into a new area: virtual reality technology.

At the E3- annual Electronic Entertainment Expo gaming conference- the virtual reality (VR) technology could be spotted everywhere except for the Nintendo booth, which is still mainly based on their traditional video game playing (Tsukayama, 2016).

During the summer of 2016, due to launch of Pokémon Go, VR technology started to attract people’s attention, “leading Consumer Spending on Virtual Reality Entertainment to Hit $3.3 Billion by 2020” (IHS Markit, 2016) (See appendix 2).

Between 2014 and 2015, the development of VR platforms has more than doubled from 7% to 16% (See appendix 3).

More specifically, game developers such as Sony and Microsoft have been moving their human resources and their funds toward VR. The flow of funds does not only come from these companies but also from financial investors such as Softbank, Fidelity and Intel Capital. The revenues from VR is expected to spike to $5.2 billion in 2018, while Microsoft and Sony have already been able to sell 50 millions of units within the gaming community alone, (Rolph, 2016).

Differently from its main two competitors, Sony and Microsoft, Nintendo is still sceptic regarding the full mainstream potential of VR.


Threat of new entrants and threats of substitutes:

The gaming console industry, has a very low threat of new entrance, has it can be seen in the pie chart the market is control by the three main players:

Source: Bloomberg

Furthermore, barriers to entry of the gaming console industry are significant, this result from the high level of R&D needed to develop a console.

However, the threat to substitution has increased with the emergence of smartphone, as gaming devices.

Since Nintendo was created it had been the only player in the home console games industry until 1994 when Sony entered the market by creating the Play Station and outselling Nintendo three to one, (Rusetski, 2012, p.197). Not long after in 2001 Microsoft joined the market introducing the Xbox, which was characterized by unique features compared to both Nintendo and Sony’s devices. Over the next years Nintendo started losing its competitiveness, while the other two dominated the market.

These losses triggered the company to innovate their strategy by aiming for a creative approach, leading to the introduction of the Wii to the market. They developed an innovative controller and targeted a different category of “casual gamers” including families and women. This led to speculations regarding whether they adopted the right strategy and indeed, it proved to be a success by recording sales of 1.25 million units in US and Canada (3.19 million units globally) (Rusetski, 2012, p. 205). By the end of the next year, Nintendo managed to surpass both Microsoft and Sony becoming a gaming consoles market leader again.

Despite the success in 2006-2007, over the past ten years, the company has been facing threats of substitutes since customers may deduce that each company is similar enough to satisfy the same needs.

Nothing changed in terms of competition between Sony and Nintendo, that in 2011, they respectively launched the PSP and the 3DS by adopting different approaches.

In 2016, Nintendo after a long period of stagnation launched in March a new platform for IOS and Android the share prices popped by 8% following the success of the app, (Kharpal, 2016). Only four months, later the company also launched Pokémon Go aiming to materialise on the nostalgia of the “Pokémon generation” which added $7.5 billion to its market capitalization (Vincent, 2016).

Suppliers and buyers

Since there are several inputs components that make up the gaming industry, companies rely on a wide number of suppliers. However, due to the specificities of the components, only a few suppliers have the technological knowhow, hence restricting the options for supply, leading to a higher bargaining power for the suppliers.

Suppliers have quite a strong leverage on Nintendo with the top ten suppliers accounting for 52.55% of Nintendo cost, with the top three suppliers accounting for 32.12%.

This can result in Nintendo being unable to negotiate favourable terms on its account payable, resulting in Nintendo requiring to pay its suppliers quickly.

Regarding the buyers’ bargaining power in the console industry, it is substantially strong, as consoles are not sold directly to the final customer but through department stores, who buy consoles in bulk, hence increasing their leverage power over price, as they will represent a significant portion of a company’s revenue.

On the customer’s sides the top ten customers of Nintendo account for 24.06% of its revenue, while the top three accounts for 16.22%. Therefore, Nintendo’s top 3 customers can negotiate favourable payment terms, hence increasing Nintendo’s account receivables days, otherwise for the remaining of its customers Nintendo can exercise significant pressure to demand payment on more favourable terms.







% Sales



GameStop Corp


Mitsumi Electrics Co Ltd


Wal-Mart Store Inc


Hon Hai Precision Industry Co Ltd

6,2% Inc


Megachips Corp


Yamada Denki Co Ltd


Yashima Denki Co Ltd


Best Buy Co Inc


Panasonic Corp


Activision Blizzard Inc


Sanshin Electronics Co Ltd


Bandai Namco Holding Inc


Sharp Corp/Japan


Metro AG


Intel Corp


K’s Holdings Corp


Total % Cost


Total % Revenue


Source: Bloomberg




• Target customer base larger than competition;

• Globally recognized;

• Affordable;

• Highly dependent on Japanese and US markets;

• High dependence on hit products.



• Chinese market

• Booming middle class in emerging markets;

• Mobile gaming.

• Exchange rates fluctuation;

• Demographic changes;

• Mobile gaming;

• Diversification;


Nintendo has successfully established a worldwide-recognized name, when it comes to gaming, by creating a set of blockbuster products. By launching the WII in 2006, they managed to change the gaming industry by introducing a family friendly game, hence gaining a lead over its competitors, who kept their focus on more individual games. Therefore, they managed to expand their consumer base significantly, this is shown by their market share of the console market jumping from the last spot in 2006 to the first one in 2014, reaching a 42% market share of the console industry, (Sprung, 2014).

Then in 2016, it successfully launched the first augmented reality game “Pokémon Go”, again gaining an edge in this new market.

Furthermore, it is price-competitive, with the WII being the cheapest of the three most popular consoles.


Emerging market, is one of the biggest opportunity for Nintendo, especially since the middle class population are booming, for example India’s middle class is expected to reach 200 million people by 2020 and it is expected that China’s middle class will reach 500 million over the next decade, (EY, 2013). This creates a significant opportunity in terms of sales, as disposable income will rise sharply.

Increasing focus on the mobile gaming industry is another great opportunity, as the revenues generated by this industry are expected to grow from a current $36.9 billion up to $52.5 billion in 2019, (Newzoo, 2016). Moreover, this will allow Nintendo to diversify its product range, consequently making it less dependent on its blockbuster products.


More than half of Nintendo’s revenue between 2006 and 2016 comes from America and Japan making them more exposed to these specific markets. In America, they were able to generated 41.5% in 2006 and 44.8% in 2016 up to now, while the Japanese market generated 26.9% in 2006 and 30.8% in 2016. These figures highlight how America plays an important role on Nintendo’s development of its overseas markets, showing how each year from 2006 and 2016 revenue was constantly higher in the American market compared to the Japanese one.

The company mainly aims to raise revenue from top selling software such as Mario, Pokémon and Fire Emblem and thus concentrates their resources on upgrading the best selling ones. This can be backed by the 2006 merger of all its software designers into four departments to devote more resources to Shigeru Miyamoto also known as Mario’s creator. Currently, they are still following the same path as 10 years ago as they are using these main four characters to open their mobile game market. An undeniable consequence of their specific attention to work on the same products is that the company evolution heavily depends on the performance of these well-known characters.


Nintendo is constantly threatened by the foreign risk due to its origin as a net exporter. The company indeed operates globally, with overseas sales accounting for 70% of its total sales, meaning that most of the monetary transactions are made in local currencies. To avoid the fluctuations, Nintendo increased purchases in U.S. dollars. Nevertheless the risk cannot be completely eliminated and thus fluctuations in foreign exchange rates have a strong impact on their business. As discussed earlier, Japan has over the past ten years been affected by constant increases and decreases of its average exchange rate.

Another factor that influences their main market is changing demographic structure leading toward an ageing population, which results in decreasing sales as adults are not their core customers.

Currently, Nintendo is facing a high threat from mobile gaming as more people are gaming on their smartphones and tablets rather than portable gaming devices. In addition to this they are also threatened by the lack of diversification that the company suffer from. Nintendo is only specialized in creating software and hardware related to the video games industry differently from their two biggest competitors Microsoft (computer software) and Sony (electronics).



Over this period inventory turnover increased, which means that Nintendo takes longer to unload its products.

Account receivable turnover has been stagnating between 25 and 35 days.

The turnover of account payable has sharply decreased resulting in Nintendo having to pay the supplier faster.

The cash conversion cycle (CCC), which combines those three ratio has worsen for Nintendo resulting in Nintendo taking longer to generate cash from their sales. The CCC has turned from negative to positive mainly due to their credit terms deteriorating.

Given Nintendo’s quick ratio it can be inferred that the company has the ability to meet its short-term creditors. Indeed, the numbers have gone up from 2:1 in 2007 to 10:1 in 2016. However, this could mirror a lack of investment and their conservative approach toward innovation thus being a potential trade-off to profitability.

The asset turnover for Nintendo increased from 2006 to 2009, after which it has been constantly decreasing. This infers that the company has seen a fall in the amount of revenue it generates per dollar of asset. Since the average assets of Nintendo have remained relatively stable through the years, the factor that drives lower asset turnover is the decrease in revenue.

Source: Bloomberg

Source: Bloomberg

Source: Bloomberg


The return on asset (ROA) has been declining particularly from 2009 (15,44%) until 2016 (0.97%) due to a decline in net income. Simultaneously return on equity (ROE) is decreasing as well, starting from 22.3% in 2009 to 1.1% in 2016 due again to a decrease in net income.

Source: Bloomberg

The net profit margin has been declining since 2006; it reached a negative figure in 2012 and 2014. This could have been a result of the sharp decline in sales since 2009.

The company also incurred reconstructing losses of 1,729 and 1,130 million of Yen in 2014 and 2015 respectively.

The ratio suggests that the company has been less and less efficient in converting sales into profits throughout the period.

In comparison to its main competitors Microsoft and Sony, Nintendo seems to be more in line with Sony. Microsoft, in contrast, has been performing far better over this period.

Source: Bloomberg

Nintendo’s revenue over the ten years showed two major movements: from 2006 the revenue increased until 2009 when it started falling rapidly up to 2016. In 2009 the company suffered severe losses due to price reduction on Wii hardware and due to the appreciation of the Yen. Even though they incurred in some loss of revenues the firm still registered a record of sales of the Wii hardware in their company’s history (Nintendo, 2010). Moreover, the decline can also be justified by a decrease in the number of software titles release making their latest product Nintendo 3DS and Wii U not so attractive to the customers. Indeed, the data show how comparing Nintendo 3DS with Nintendo DS and Wii U with Wii, previous products had more variety of choices (See appendix 4).


Given the net worth multiplier close to one the company’s assets are mainly funded by equities rather than debt. This can be seen throughout the analysed period, which hardly shows any sign of leverage.


Nintendo’s share price in 2007 was registered at historical high and then decreased by almost 80% until 2014. In 2014 it was predicted that the company would have had a negative income for that year due to the Wii U and Nintendo 3DS flop with consumers. This led to the company to cut back on the budget of sales for hardware and software and to explore a new business. In response to that they adopted a share buyback approach, which would avoid pressure by investors and by those challenging Nintendo’s strategy on the management of the company (Noonan, 2014).

In addition to that salary bonuses of Satoru Iwata and other directors were cut by 50% and 30% respectively (Amano, 2014).

In March 2015 Nintendo announced that it would collaborate with a mobile gaming company called DeNA Co. Ltd. to develop a new interface on smart devices in exchange of 1,759,400 shares. This announcement triggered a 27.36% share price increase overnight (Grubb, 2015).

Between 2015 and March 2016 the share price dropped by 8.13%, however with the launch of Pokémon Go on the 7th of July 2016 the share price of Nintendo went up by 120% within one day. The share price of Nintendo further increased by 28.79% following the announcement of the launch of Mario for mobile games (Grubb, 2016).

Furthermore Nintendo plans to introduce two new mobile games, “Animal crossing” and “Fire emblem”, by the end of March 2017. The implementation of this project is expected to boost Nintendo’s share price.

Source: Bloomberg

Source: Bloomberg

Based on their weak profitability the earning per share of Nintendo went down starting from 2009, which is in line with the overall trend of the company.

At the same time Nintendo never failed to pay its shareholders even when the company was recording negative net income. This was done using their most liquid assets. In 2016 Nintendo even increased its minimum dividend payment by 20% in order to retain its current investors.

Source: Bloomberg

As it can be seen from the graph the moving average helps understand upward and downward pressure on the share price. After repurchasing their own shares, there have been several reversals meaning that there have been changes in their strategies. Since the announcement of the Mario app on September 07th 2016, the share price of Nintendo has risen quite significantly. It is expected that the share price will further increase with the launch of “Mario” in December 2016. It is rumored that Nintendo will also bring to the market two new games in March 2017, this will also lead to an increase in the share price.


Our analysis has provided us with some detailed insights on the overall performance of Nintendo over the last ten years.

Given the exchange rate fluctuations, competition and changes in customers’ preferences, Nintendo is focusing on changing their business style by investing in a new area.

Since their initiative of moving toward mobile video gaming had effective results for the company in terms of market share price, they intend to continue on the same path with the announcement of two new mobile games. Given the increase in share price after the Pokémon Go and the increase in the promised dividends paid, the company keeps attracting investors’ attention, which provides them with a “safe” environment to develop their new business. Based on their annual report Nintendo has large amount of funds that could be invested in R&D. Furthermore, due to the fact that Nintendo is unleveraged, it could even take on debt in order to fund its expansion into mobile games.

Given Nintendo’s historical success on the launch of Pokémon Go and Mario bringing positive effect on share price, the continuing launch of two well-known games will boost the market value of the company as well.

Freelance Writer

I’m a freelance writer with a bachelor’s degree in Journalism from Boston University. My work has been featured in publications like the L.A. Times, U.S. News and World Report, Farther Finance, Teen Vogue, Grammarly, The Startup, Mashable, Insider, Forbes, Writer (formerly Qordoba), MarketWatch, CNBC, and USA Today, among others.