Nintendo Develops New Money-Printing Machine

Posted by Benjamin Hoyt on April 24th, 2008 filed in Video Games

Nintendo released its results for FY 2008 today.  Here are a few of the highlights that I got from this article at GameDaily:

  1. Revenue (sales) = $16.07 billion (an increase of 73%)
  2. Operating Profit = $4.69 billion (an increase of 115.6%)
  3. Net Profit = $2.5 billion (an increase of 47%)

Let’s put this in perspective.  Fortune magazine recently released the 2008 "Fortune 500" Rankings for US companies, which you can find here.  Based on my understanding, what this means is that Nintendo’s Gross Revenues ($16.07 billion) would put it at about 157th in the Fortune 500.  A few noteworthy companies that they would be ahead of: Gap, Office Depot, Halliburton, Amazon.com, Amgen, Sun Microsystems, Texas Instruments, CBS, Pepsi, Colgate-Palmolive, PG&E, and Marriott.

Unfortunately, CNN Money only ranks the top 50 companies in the Fortune 500 on their profits and return on revenue, but in both cases Nintendo seems like it is very close to being in the top 50.  In case you are wondering if this is some sort of a one-year fluke:

Nintendo thoroughly expects to keep its momentum throughout this year and into 2009. For the fiscal year ending next March, the company is forecasting a 26.3 percent increase in net profit to 325 billion yen ($3.15 billion), a 7.6 increase in net sales to 1.8 trillion yen, and an 8.8 percent rise in operating profit to 530 billion yen ($5.14 billion).

This information is noteworthy for two reasons: 1) We’re talking about a company that, no more than 2 years ago, people were afraid was going to have to leave the video game console business because they "couldn’t compete" with the "big boys" (Sony and Microsoft).  Meanwhile, Sony has yet to turn a profit on the PS3 business and Microsoft runs around tooting its own horn for barely doing so! 2) The video games industry seems to continue to be completely unfazed by the recession of the larger economy.

So, where does all of this profit go?  According to GameDaily:

In addition to its fiscal results, Nintendo today also announced a full-year dividend for its shareholders of 1,260 yen per share (including the interim dividend of 140 yen already paid). This represents an increase of 570 yen over the annual dividend of 690 yen paid one year ago.

It kills me that I couldn’t figure out how to buy stock in Nintendo via Etrade 18 months ago, when I tried. 

Oh well, if there’s anyone out there that remains unconvinced that video games are big, BIG, business, I suggest you refer them to this information.

 


6 Responses to “Nintendo Develops New Money-Printing Machine”

  1. Anton Hill Says:
    April 26th, 2008 at 10:03 am

    You know what bothers me in vg vs. flix vs. books is that the revenue goes roughly inversely to the amount of respect.

    For years now vg have sold far more than flix, and yet people like my wife refer to vg in very pejorative, condescending tones. As if vg are not legitimate art forms or even a legitimate business.

    Arg.

    I know that not all games are works of art. I didn’t myself think much of Spartan: Total Warrior. But then neither are all movies (AVP, Royal Tenanbaums) nor books (Harlequinn, Harry Potter). And yet time and time again I hear “I don’t play GAMES” as if that were something to be admired.

    I maintain hope that opne day, I hope before I turn fifty, games will have earned the mainstream respect they’ve already earned in revenues.

  2. Robi Ganguly Says:
    April 27th, 2008 at 11:30 pm

    Hey man, interesting post. It is fascinating to think about how recently Nintendo was in “trouble”. Two questions for you:

    1) Should we be buying Nintendo stock now? Do you think it makes sense from a valuation or growth opportunity standpoint?
    2) Was Nintendo really “in trouble” a couple years ago, or was it actually in a good position financially (lots of cash, no debt etc..) but being badmouthed by a largely ignorant press?

  3. Benjamin Hoyt Says:
    April 28th, 2008 at 10:47 am

    Anton,
    You’re absolutely right, but it will be an uphill battle. I think that the writing is on the wall, however, and it’s really only a matter of time until video games widely receive the kind of respect for their cultural/artistic validity that you’re talking about.

    In my mind, there is a bucket that contains things that are “inevitable but which may take a frustratingly long time to actually happen.” This bucket contains things like equal rights for homosexual couples, the death of ad-supported broadcast television, and the emergence of digital distribution as the primary way people access media. I put the recognition of video games as a legitimate artform into this bucket.

  4. Benjamin Hoyt Says:
    April 28th, 2008 at 10:56 am

    Robi,
    So, my answers to your questions are as follows:
    1) I’m really not the best person to ask this of. However, I have gotten burned almost every time I have tried to buy stock in an individual company. I tend to buy in companies that excite me and it seems that, in the past, the market has pretty-much always already factored my excitement level into the stock price. ;-) So, with regards to Nintendo, I would not buy stock now, as I think that everyone knows that they are kicking ass and taking names. So, from a “buy low / sell high” perspective, I think that you would be buying at an all-time high. Which is probably not the best idea. I think that they will continue to do very well, but the momentum that they have been enjoying will be nearly impossible to maintain in the long-term and I suspect that their recent success has already been factored into the price (hence the fact that they had the 2nd-highest market cap of any company on the Nikkei last year). So, for what it’s worth, my gut says “no.” The opportunity has passed.
    2) Nintendo was absolutely in a fantastic financial situation back when people said that they were “in trouble.” But, in this business, there is a big difference between your financial stability and your market viability. The perception was simply that even though they were in a good position financially, they didn’t have the financial capacity and the brand equity to compete with the bigger companies in the long-term and that their struggles in the last 2 generations (Gamecube and N64) were clear evidence of that.

    I don’t think that they were being bad-mouthed by an ignorant press, however. For one thing, the gaming press tends to LOVE Nintendo. Many gaming journalists were fairly unabashedly “rooting” for Nintendo prior to the release of the Wii, while simultaneously lamenting the fact that no one (enthusiast press, mainstream press, analysts, developers) game them much chance of coming out on top in this generation.

    Fundamentally, they were “in trouble” in the same way that Toshiba was “in trouble” with the HD format war. The company may be perfectly fine, financially, but they were not expected to be able to create a very viable market presence. Some people even suggested that they should bow-out of the console battle and just focus on making software for the other two consoles. How hilarious does that suggestion look now, in retrospect? LOL

  5. Benjamin Hoyt Says:
    April 28th, 2008 at 12:01 pm

    PS – That being said, here are some comments on Nintendo’s financial prospects from someone eminently more qualified than myself: http://www.gamasutra.com/php-bin/news_index.php?story=18411

  6. Robi Ganguly Says:
    April 28th, 2008 at 4:08 pm

    Looks pretty damn silly, of course:)

    But what I find interesting is that you don’t think that the press was ignorant.

    I disagree. The company was in fantastic financial position, had a long and distinguished history of success and the press, while “rooting” for Nintendo, thought that they didn’t have much chance to “come out on top”.

    This is silly for a few reasons:

    1) This isn’t a winner-take-all market. Going back to that email exchange you had a few months ago, the video gaming market is now supporting multiple consoles and regardless of Nintendo’s ability to “come out on top”, they can still succeed and run a healthy business.
    People reporting about business deserve to be smacked for implying otherwise.
    2) While some of the companies in the video game sector have lived and died based upon their ability to succeed with the new generations, Nintendo hasn’t. They’ve adapted, identified new markets and expanded. While some might think that they did poorly with Gamecube and N64, I’d say that’s hogwash: over that same period of time they also basically created and then owned the handheld market through the GBA and DS.
    3) It’s amazing to me that commentators on this industry continue to underestimate the huge difference between Nintendo and every other console maker. The DNA of the company is different: they consistently make their own games and do so with massive success. Game studios assist Nintendo, but tend to DRIVE the businesses of the other hardware manufactures. This difference alone should give people pause when predicting the demise of the company.

Leave a Comment