Nintendo: Positive FX tailwinds but test times ahead (OTCPK: NTDOY)

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Investment thesis

A rapidly depreciating Japanese yen will act as a tailwind for Nintendo’s reported financials (OTCPK:NTDOY), but stocks are not reacting in the usual way, raising fears of a weaker-than-expected downturn. holiday season. Valuations remain relatively acceptable at PER FY3/2024 17.6x, but with concerns over consumer activity, we reiterate our neutral rating.

quick primer

Nintendo is a leading electronic entertainment franchise. We estimate that its latest Switch game console has reached more than 111.08 million hardware unit sales this festive season – the company’s best-selling console to date since the Wii which sold 103.51 million units.

Key objectives

As the busy holiday season approaches, we want to update our view on Nintendo since our neutral rating was issued in January 2022, which was based on what we believe to be a fair assessment with a yield of consensus free cash flow of 5.5%.

In this article, we will focus on the impact of the weaker yen and the outlook for the second half of FY3/2023.

Key financials with consensus earnings forecasts

Key financials with consensus earnings forecasts

Key financials with consensus earnings forecasts (Company, Refinitiv)

Recent trading is ahead of expectations, but macro concerns are growing

Nintendo will report its first half of fiscal year 3/2023 results on November 8, 2022, and with the significant movements in the currency markets, we expect positive single-digit year-over-year sales growth for the September quarter, per opposition to 4.6% over one year decline in sales seen in the first quarter of fiscal year 3/2023. This shouldn’t come as a huge surprise, given that Nintendo’s currency assumptions are 115 JPY against the US dollar (currently 144 JPY, a 25% move) and 125 JPY against the euro (currently 140 JPY, a movement of 12%). With overseas sales accounting for nearly 80% of sales, Nintendo’s profits are highly sensitive to currency.

The fact that equities did not react as expected to the rapid depreciation of the Japanese yen is concerning. With the intervention of the Bank of Japan to support the currency, the market might think that a weak yen is a temporary trend. Another view could be deepening concerns over the all-important holiday season, where consumer activity could be materially weaker year-on-year given growing uncertainties over the macro outlook.

We believe it is realistic to assume that consumer activity will be less robust compared to Christmas 2021 globally. Our main concern is with the European market, where for example UK Retail Volumes are expected to fall year over year, although with inflationary pressure the value of sales is expected to increase. Limited access to cheap credit is another concern; the average annual percentage rate is 18.1%, the highest since January 1996 according to data from, and is expected to continue to rise. In the United States, people are saving much less money than before with higher spending, with the Fed Personal savings rate tracker (calculating personal savings as a percentage of personal disposable income) dropping from 10.5% in July 2021 to 5.0% in July 2022.

Video games in the more mature and experienced gaming community tend to be less affected by economic turmoil. However, one of Nintendo’s main competitive strengths is its appeal to a wider audience and an addressable market. Unfortunately, that could work against the company now that families are starting to feel the pinch of discretionary spending and tough choices have to be made.

Nintendo doesn’t tend to discount for volume changes, and hardware only sees price drops with new releases. While this should help keep its profitability high, a negative surprise for the market would be a lackluster year-over-year earnings growth profile in Q3 FY3/2023. Despite a relatively active slate of strong proprietary stocks over the next 12-18 months, macroeconomic headwinds could derail the company’s goal of maintaining its current historically high level of earnings.

Current consensus forecasts (see Key Financial Data table above) point to a very stable earnings profile for the next two years. We think that would be a very commendable performance (with stable exchange rates), but perhaps a bit too optimistic considering that the Switch is approaching its 6th anniversary in March 2023, and any new platform releases shape will take at least 1.5 years to evolve. Are there any major developments on the horizon? We know that Nintendo is about to movies, expansion its space at Nintendo World, and a next-gen Switch is in development. There may be more disclosure at Nintendo Live 2022 event in Japan on October 8 and 9, but we don’t think the company is in a position to reaccelerate its growth.


According to the current consensus forecast, the shares are trading on a FY3/2024 P/E of 17.6x, a free cash flow yield of 4.4% and a dividend yield of 3.1%. These valuations are not particularly demanding, again denoting the fair value of a well-managed intellectual property business generating stable profits.

The 10-to-1 stock split is a welcome development, but we believe the benefits of this corporate action will be limited for two reasons. First, what’s moving Japanese large-cap stocks isn’t retail money but foreign investors – and they already have over 48% ownership (53% if we ignore cash stocks), which is already at a relatively high level. Second, September 29, 2022 was the first trading day after the split, but trading volumes were only up 1.4% from the previous day, indicating that investors are not reacting. To conclude, if you wanted to be a shareholder of Nintendo, you would probably have already been invested.


The upside risk comes from a strong festive season in Q3 FY3/2023 as demand for the Switch exceeds expectations. Second, new disclosure of strong software releases in FY3/2024 and beyond will increase earnings visibility. Third, share buyback activity would be a positive catalyst for stocks.

Downside risk comes from subdued consumer activity in European markets in the short to medium term – although a smaller market than the US, it is still significant and contributes around 25% total profits. If Nintendo management adopts a more conservative management style with growing macroeconomic uncertainties, new product releases could experience unexpected delays until the environment is more stable.


Nintendo shares have held up relatively well in 2022, but the big test is coming for the holiday season. FX will act as a tailwind for reported JPY revenue, but we fear weaker retail activity will put pressure on sales volumes and Nintendo will see weaker demand compared to the past three years. . We believe some of these negative expectations are priced in and, given current valuations (which are by no means stretched), we reiterate our neutral rating.

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