HomeStock MarketIs Now the Right Time to Buy (Nintendo) NTDOY Stock Amidst the...

Is Now the Right Time to Buy (Nintendo) NTDOY Stock Amidst the Leak?

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Nintendo Co., Ltd.’s (NTDOY) Nintendo Switch has been around for more than seven years, and enthusiasts are beginning to get impatient about a successor. Initially rumored for a release in 2024, recent reports now suggest that the Nintendo Switch 2 is more likely to launch in the early months of 2025.

NTDOY has been secretive about its plans so far, but a recent significant leak suggests revealing a key detail about the new controllers for the rumored Switch 2, which will differ from the present design.

The major difference is that the upcoming controllers (which may be called Joy-Con) will utilize a magnetic system to attach to the console’s body, unlike the current design that relies on rails that the Joy-Con slides into. This magnetic attachment may be similar to the Lenovo Legion Go, in which the controllers need to move less to attach.

However, unlike the Legion Go, which has a mechanical lock, this appears to be distinct from that approach.

The leaked information comes from Spanish outlet Vandal, citing accessory vendors who got to touch the new console but did not see it. As per reports, these manufacturers were allowed to handle the console inside an opaque box that conceals its look, allowing them to get a feel for the hardware in general.

The shift to magnetic attachment raises significant concern about the compatibility of the current Joy-Con models with the new console, particularly in handheld mode. However, the report suggests the console will support the Nintendo Switch Pro controller. Further, it seems that Joy-Con would be supported in wireless mode, akin to how they can be used with a Nintendo Switch Lite.

Another noteworthy detail from the leak is that the Nintendo Switch 2 will be larger than the current Switch models but smaller than a Steam Deck. Earlier reports indicated an 8-inch LCD display is being built into the console, making a bigger size mandatory.

But, intriguingly, the Nintendo Switch 2 will be smaller than a Steam Deck, given that the latter has a 7-inch panel. That said, the larger trackpads on the sides of the screen and the thicker controller may contribute to Nintendo’s console being still smaller overall.

As per sources cited by Vandal, the hardware for the Nintendo Switch 2 is completed. However, the company is postponing its launch to coincide with a more captivating lineup of games. This strategy mirrors the success of the Nintendo Switch, which was highly influenced by a strong lineup of titles available in the first year, like Super Mario Odyssey, The Legend of Zelda: Breath of the Wild, and Splatoon 2.

In addition to this information, earlier reports have indicated that the Switch 2 will use an Nvidia chip based on the Ampere architecture with support for DLSS. There are also speculations about the console’s backward compatibility with the current generation.

The leaked details about the Nintendo Switch 2’s innovative features have fueled excitement and speculation about the console’s potential success in the market. The upcoming launch of Nintendo Switch’s successor is anticipated to be a key catalyst for NTDOY’s stock price.

Investors will likely closely monitor developments related to the new next-generative video game console, including its release date, pricing, and game lineup.

Now, let’s analyze other factors that could influence NTDOY’s performance in the near term:

Recent Developments

On March 10, 2024, NTDOY and Illumination announced a new animated film based on the world of Super Mario Bros. This animated film will be released on April 3, 2026, in the U.S. and additional markets globally, with select territories releasing throughout April.

The film will be produced by Chris Meledandri, Illumination’s Founder and CEO, and Shigeru Miyamoto, Representative Director and Fellow of NTDOY, directed by Aaron Horvath and Michael Jelenic, and written by Matthew Fogel. The film will be co-financed by Universal Pictures and Nintendo and distributed theatrically globally by Universal Pictures.

On November 8, 2023, NTDOY announced the development of a live-action film of The Legend of Zelda. The film will be produced by Nintendo and Arad Productions Inc. and directed by Wes Ball. It will be co-financed by Nintendo and Sony Pictures Entertainment Inc., with over 50% financed by Nintendo.

By producing visual content of Nintendo IP by itself, NTDOY is opening up new avenues for global audiences to experience the entertainment world it has built via different means apart from its dedicated game consoles.

Gaming Console Industry Analysis

As per the market analysis, customers highly prefer home consoles due to their enhanced gaming experience. Favorable features of home consoles include online multiplayer gaming experience and cloud support, among others. Factors like rising disposable incomes and the availability of several gaming options boost the market growth.

Further, the integration of emerging technologies such as 3D and augmented reality & virtual reality (AR&VR) in gaming is expected to drive the industry’s expansion.

According to a Mordor Intelligence report, the global game console industry is expected to reach $80.98 billion by 2029, growing at a CAGR of 7.2% during the forecast period (2024-2029). The market is moderately competitive, with dominant players such as Sony Group Corporation (SONY) and Microsoft Corporation (MSFT).

The gaming console industry’s bright growth prospects should bode well for NTDOY.

Robust Financial Performance and Upbeat 2024 Outlook

For the nine months that ended December 31, 2023, NTDOY reported net sales of ¥1.39 trillion ($8.83 billion), an increase of 7.7% year-over-year. The company sold 13.74 million Switch consoles for the nine-month period. Its operating profit grew 13.1% from the prior year’s period to ¥464.41 billion ($2.95 billion).

Furthermore, the gaming giant’s profit attributable to owners of parent came in at ¥408.04 billion ($2.59 billion), up 17.9% year-over-year. Its profit per share rose 18% from the previous year’s period to ¥350.48.

As of December 31, 2023, NTDOY’s total assets stood at ¥3.07 trillion ($19.51 billion), compared to ¥2.85 trillion ($18.11 billion) as of March 31, 2023. The company’s net assets were ¥2.48 trillion ($15.76 billion) versus ¥2.27 trillion ($14.43 billion) as of March 31, 2023.

After an outstanding financial performance, the Japanese video game company expects to sell 15.5 million of its Switch consoles in the fiscal year 2024, up from the prior forecast. NTDOY revised its net profit to ¥440 billion ($2.80 billion) for the full year, compared to its previous forecast of ¥420 billion ($2.67 billion).

Impressive Historical Growth

Over the past five years, NTDOY’s revenue and EBITDA grew at CAGRs of 7.3% and 17.8%, respectively. The company’s net income and EPS rose at respective CAGRs of 23.4% and 24.1% over the same timeframe. Its total assets improved at 11% CAGR over the same period.

Solid Profitability

NTDOY’s trailing-12-month gross profit margin of 56.78% is 15.5% higher than the 49.17% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 32.81% and 29.07% are considerably higher than the industry averages of 8.31% and 2.62%, respectively.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 21.27%, 15%, and 16.1% are favorably compared to the respective industry averages of 2.94%, 3.39%, and 1.18%.

Bottom Line

NTDOY surpassed market expectations for profit and revenue in the last reported quarter and raised its full-year 2024 forecast for Switch console sales and profit. The Japanese video gaming company has managed to keep up the momentum for the Switch, driven by the release of the “Super Mario Bros. Movie” and the flagship Zelda game last year.

Investors and enthusiasts are now watching for an outright announcement of a successor to its Flagship console, Switch. Latest reports indicate that the Nintendo Switch 2 is expected to launch in the early months of 2025.

The company has maintained secrecy regarding its plans so far, but a recent significant leak from Spanish outlet Vandal revealed crucial hardware details about the purported Switch 2, which will likely be different from the current design.

The new controller will use a magnetic system to attach to the body of the console. Also, it will be larger than the present Switch models, albeit not as large as Steam Deck. Further, prior reports suggest that the Switch 2 will incorporate an Nvidia chip based on the Ampere architecture with DLSS support.

Additionally, there are speculations that the console may feature backward compatibility with the current generation.

The upcoming launch of the Nintendo Switch 2 presents a significant opportunity for investors. Investors should closely monitor developments related to this new console, such as release date, game lineup, and pricing.

Notably, NTDOY has a valuable portfolio of iconic gaming franchises, including Mario, Zelda, and Pokémon. Continued innovation, strategic partnerships, and expansion into mobile gaming are expected to drive the company’s growth and profitability.

Given these factors, it could be wise to invest in this stock for potential gains.

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