1/ Nintendo $NTDOY, a multi-generational icon, with 26 of the top 50 best selling titles, an IP portfolio 2nd to only Disney, trades at just 12x ex-cash earnings.
2/ Margins have only been improving because of the shift to digital, and they have over 30mn paying online subscribers--their first recurring revenue ever.
3/ Not to mention, their initiatives with DLC extends a game’s monetizable life and drives consumer spending higher, while increasing engagement.
4/ The Switch is on pace to be their best selling console ever. Some think it might also be their last new console line, and moving to a “continuous iterative hardware” model has a massive implication for the quality of the business…
5/ … however, even if game streaming supplants consoles, Nintendo is in a race of their own with 80% of all game sales on their platform from proprietary IP.
6/ But could the real story be their monetization of IP with movies, theme parks, and licensing deals like with Lego? What makes Disney such a good business is that their…
7/ … virtuous cycle effectively allows them to amortize CAC across multiple different business lines. But it is often even more powerful than that: what would be standalone acquisition costs for one business actually become profit pools for another.
8/ Nintendo has the IP to execute and is taking baby steps, but could their cultural DNA stand in the way? Even if they are not the next Disney, a more stable business from a…
9/ … continuous iterative hardware cycle would eliminate the extreme vicissitudes of their earnings cycle, making them a drastically better business and warranting a much higher valuation.
End/ We explore all this and more in our 10,000+ word write-up with full financial builds here:
"'Stay close to the money.' If you're not close to the stream of cash flow, if you're not directly responsible for winning the bread, and bringing in cash, you're expendable... Cash flow is a lifeblood."