DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
21 April 2017 Asia Pacific/Japan Equity Research
Entertainment Software (Video Game (Japan))
Nintendo (7974) Rating NEUTRAL [V] Price (20 Apr 17, ¥) 26,815 Target price (¥) 30,000 Change to TP (%) 12 Market cap (¥ bn) 3,221 (US$ 29.5) Enterprise value (¥ bn) 2,593 Number of shares (mn) 120.1 Free float (%) 70.0 52-week price range 31,770–13,800 Target price is for 12 months.
[V] = Stock Considered Volatile (see Disclosure Appendix)
Research Analysts
Keiichi Yoneshima
81 3 4550 9740
Hanako Takahashi
81 3 4550 7366
INITIATION
A strong, new Nintendo: Can it beat market expectations? ■ Initiating at NEUTRAL with ¥30,000 TP: We initiate coverage of Nintendo with
an NEUTRAL rating and a ¥30,000 target price (potential return 12%). We believe the company is entering a new phase of robust sales and profit growth, driven by the Nintendo Switch and new smart device game app business. In our view, however, we think the current share price already reflects this favorable outlook. We thus initiate at NEUTRAL.
■ Switch likely to drive profit/sales growth: We believe the Nintendo Switch is strongly positioned as a hybrid home console/handheld device, and thus expect uptake of 49mn units over five years, on par with the Super Nintendo Entertainment System (SNES). Such hardware uptake should drive up sales of game software with high marginal profit ratios (we assume an attach rate of 6x). In view of this, we look for software-business OP to surge to ¥165.8bn in FY3/19 (+450% vs. FY3/16).
■ Smart device apps: Smart-device games using popular IP seem to be taking off. With 2–3 titles planned over the next year, monthly sales of ¥20bn (level with Supercell’s) look achievable, given Nintendo’s ample intellectual property (IP). In FY3/20, we expect sales and OP to grow to ¥230bn and ¥106bn respectively. The nature of Nintendo’s business makes it less susceptible to losses and quiet periods than games operations in the past. This, along with prospects for synergies with game software businesses and other advantages, are likely to lift profits while ensuring greater stability.
■ Catalysts/risks: Catalysts include sales and profit growth driven by rising popularity of the Switch and a profit boost from the smart device game app business. Risks include worse-than-expected Switch sales and a lower attach rate, game app sales doing better (or worse) than expected, game app development delays, competitors launching new game consoles, and rapid yen appreciation or depreciation. Key points to watch for at FY3/17 results include initial FY3/18 guidance, the company’s Switch hardware sales projection, and an update on the development pipeline for game apps.
■ Valuation: Our ¥30,000 TP is from a sum-of-the-parts model based on (1) the game console business, (2) smart device app business, and (3) cash on hand.
■ Shareholder returns: With ample cash on hand, Nintendo is generally targeting a dividend payout ratio of at least 50%.
Share price performance
The price relative chart measures performance against the
TOPIX which closed at 1,472.81 on 20-Apr-2017
On 20-Apr-2017 the spot exchange rate was
¥109.31/US$1
Performance 1M 3M 12M Absolute (%) -1.5 14.3 54.7 Relative (%) 1.3 17.2 47.9
Financial and valuation metrics
Year 3/16A 3/17E 3/18E 3/19E Sales (¥ bn) 504.5 416.0 888.9 1,140.8 Operating profit (¥ bn) 32.9 21.0 91.3 196.7 Recurring profit (¥ bn) 28.8 23.3 105.7 211.1 Net income (¥ bn) 16.5 85.5 69.7 141.4 EPS (¥) 137.4 712.0 580.6 1,177.3 IBES Consensus EPS (¥) n.a. 769.9 677.3 1,058.1 EPS growth (%) (61.1) 418.2 (18.5) 102.8 P/E (x) 116.4 37.7 46.2 22.8 Dividend yield (%) 0.9 1.3 1.1 2.2 EV/EBITDA (x) 33.1 86.2 26.0 12.5 P/B (x) 2.0 3.1 3.0 2.9 ROE(%) 1.4 7.2 5.7 11.0 Net debt/equity (%) Net cash Net cash Net cash Net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates
21 April 2017
Nintendo (7974) 2
Nintendo (7974)
Price (20 Apr 2017): ¥26,815 (upside: 12%); Rating: NEUTRAL [V]; Target Price: ¥30,000; Analyst: Hanako Takahashi
Income statement (¥ bn) 3/16A 3/17E 3/18E 3/19E
Sales 504.5 416.0 888.9 1,140.8 EBITDA 42.0 30.1 100.4 205.8 Operating profit 32.9 21.0 91.3 196.7 Recurring profit 28.8 23.3 105.7 211.1 Extraordinary gain & loss (1.1) 62.5 0.0 0.0 Profit before tax 27.7 85.9 105.7 211.1 Net income 16.5 85.5 69.7 141.4
Cash flow (¥ bn) 3/16A 3/17E 3/18E 3/19E
Operating cash flow 55.2 98.0 30.1 124.6 Depreciation & Amortization 9.1 9.1 9.1 9.1 Investing cash flow (71.7) 32.3 (10.4) (10.4) Capex (3.1) (10.4) (10.4) (10.4) Free cash flow (16.5) 130.3 19.7 114.2 Financing cash flow (3.0) (35.1) (34.9) (70.7) Issuance (retirement) of stock (0.0) 0.0 0.0 0.0 Dividends paid (24.9) (42.8) (34.9) (70.7) Net change in cash (19.5) 95.2 (15.2) 43.5
Balance sheet (¥ bn) 3/16A 3/17E 3/18E 3/19E
Cash & cash equivalents 570.4 665.7 650.5 694.0 Current receivable 38.7 34.2 73.1 93.8 Inventories 40.4 34.3 68.9 80.7 Other current assets 371.5 388.2 388.2 388.2 Current assets 1,021.1 1,122.4 1,180.7 1,256.7 Property, plant & equipment 130.3 134.6 138.8 143.0 Investments - - - - Intangibles 10.0 10.0 10.0 10.0 Other non-current assets 135.5 135.4 135.4 135.4 Total assets 1,296.9 1,402.4 1,464.9 1,545.0 Payables 31.9 27.5 55.1 64.6 Short term debt 0.0 0.0 0.0 0.0 Other current liabilities 66.6 126.1 126.1 126.1 Current liabilities 98.4 153.6 181.2 190.7 Long term debt 37.6 37.5 37.5 37.5 Other non-current liabilities 0.0 0.0 0.0 0.0 Total liabilities 136.0 191.1 218.7 228.2 Shareholders' equity 1,160.8 1,211.2 1,246.1 1,316.8 Minority interests 0.1 0.1 0.1 0.1
Key ratios 3/16A 3/17E 3/18E 3/19E
Growth (%) Sales (8.2) (17.5) 113.7 28.3 Operating profit 32.7 (36.1) 334.8 115.4 EPS (61.1) 418.2 (18.5) 102.8 Margins (%) Gross margin 43.8 39.7 43.5 48.4 EBITDA margin 8.3 7.2 11.3 18.0 OP margin 6.5 5.0 10.3 17.2 DuPont analysis ROE (%) 1.4 7.2 5.7 11.0 Net profit margin (%) 3.3 20.6 7.8 12.4 Sales/Assets 0.4 0.3 0.6 0.7 Assets/Equity 1.1 1.2 1.2 1.2 Credit ratios (%) Equity ratio 89.5 86.4 85.1 85.2 Net D/E ratio Net cash Net cash Net cash Net cash Per share data (¥) Number of shares (mn) 120.1 120.1 120.1 120.1 EPS 137.4 712.0 580.6 1177.3 BPS 8193.6 8549.3 8795.5 9294.6 DPS 150.0 356.0 290.3 588.6 Dividend payout ratio (%) 109.2 50.0 50.0 50.0
Valuation (x) 3/16A 3/17E 3/18E 3/19E
P/E 116.4 37.7 46.2 22.8 P/B 2.0 3.1 3.0 2.9 EV/EBITDA 33.1 86.2 26.0 12.5 Dividend yield (%) 0.9 1.3 1.1 2.2 FCF yield (%) 2.7 2.7 0.6 3.5
Source: Company data, Thomson Reuters, Credit Suisse estimates
21 April 2017
Nintendo (7974) 3
Table of contents
Key charts 5
Executive summary 7
Shrinking market over the last ten years due probably to Wii’s enormous success 7
Dual role as console and portable a strength in middle-end market ........................ 7
Expect boost to earnings from game app business ................................................. 9
Earnings forecasts .................................................................................................. 11
Entering strong profit growth stage; target price calculation based on SOTP ....... 12
Business segment overview 13
Dedicated video game business ............................................................................ 13
Smart devices and IP-related business .................................................................. 17
Other businesses ................................................................................................... 19
Cost structure ......................................................................................................... 19
Investment case: Mobile apps and the Switch both earnings growth drivers 21
Initiating at NEUTRAL with ¥30,000 TP ................................................................. 21
Forecast Nintendo Switch adoption on par with Super Famicom .......................... 21
Nintendo’s smart device application ....................................................................... 29
The Switch from a marketing perspective 33
Dual role as console and portable a strength in middle-end market ...................... 33
Redefining the casual game 38
Content value the sum of core value and peripheral value .................................... 38
Monetizing older titles a possibility, but hurdles remain 41
Is ¥850-plus a reasonable price for a Famicom-era game? .................................. 41
Ability to download older titles an advantage, but significant growth unlikely given
main age group....................................................................................................... 42
Financial information 44
Shareholder returns ................................................................................................ 44
Forex impact ........................................................................................................... 45
Equity method affiliates .......................................................................................... 46
Valuation: Valuations not excessive, but V-shaped recovery already priced in 47
Assessing current valuations using an SOTP model ............................................. 47
Risks ....................................................................................................................... 54
HOLT 55
21 April 2017
Nintendo (7974) 4
Earnings forecasts 57
Company overview 61
Company history..................................................................................................... 61
Board of directors ................................................................................................... 62
Shareholders .......................................................................................................... 63
Company/group status ........................................................................................... 63
21 April 2017
Nintendo (7974) 5
Key charts
Figure 1: Switch and apps likely to propel profit
growth
Figure 2: Forecasting rapid sales and profit growth in
smart device app earnings
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 3: Forecasting profit boost from apps and stronger sales volume
Source: Company data, Credit Suisse estimates
Figure 4: Profit sensitivity analysis: Console sales and software attach rate
Source: Company data, Credit Suisse estimates
30 21
115 166 148
1 4
26
66 106
-100
-50
0
50
100
150
200
250
300
FY3/16 FY3/17E FY3/18E FY3/19E FY3/20E
(JP
Y b
n)
Operating ProfitOther
Smard device
Software
Hardware
6 16
70
150
230
1 4 26
66
106
0
50
100
150
200
250
FY16/3 FY17/3E FY18/3E FY19/3E FY20/3E
(JP
Y b
n)
Smart device Sales
Smart device OP
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
FY3/
90
FY3/
91
FY3/
92
FY3/
93
FY3/
94
FY3/
95
FY3/
96
FY3/
97
FY3/
98
FY3/
99
FY3/
00
FY3/
01
FY3/
02
FY3/
03
FY3/
04
FY3/
05
FY3/
06
FY3/
07
FY3/
08
FY3/
09
FY3/
10
FY3/
11
FY3/
12
FY3/
13
FY3/
14
FY3/
15
FY3/
16
FY3/
17E
FY3/
18E
FY3/
19E
FY3/
20E
3DS NDSGBA GBSwitch Wii-UWii GCN64 SFCFC OP total (RHS)
('000 units) (JPY mn)
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
2 x 60 60 60 60 60 60 60 60 60 70
3 x 70 80 90 90 100 110 120 120 130 140
4 x 90 100 110 130 140 160 170 190 200 210
5 x 100 120 140 160 180 200 230 250 270 290
6 x 110 140 170 200 220 250 280 310 340 360
7 x 130 160 200 230 270 300 330 370 400 440
8 x 140 180 220 260 310 350 390 430 470 510
9 x 150 200 250 300 350 400 440 490 540 590
10 x 170 220 280 330 390 440 500 550 610 660
11 x 180 240 300 370 430 490 550 610 680 740
Nintendo Switch(3year sales forecast '000)
Att
ach r
ate
FY3/19 OP
(JPY bn)
WiiWiiU
WiiU
Wii
21 April 2017
Nintendo (7974) 6
Figure 5: Game positioning map: As a hybrid console, Switch should give Nintendo a strong midrange
position
Source: Company data, Credit Suisse
Figure 6: TP calculation based on SOTP model
Source: Company data, Credit Suisse estimates
PS4, Xbox One
JPY 1.4 trillion
PC
JPY 2.2 trillion
3DS,
PS Vita
JPY 0.7 trillion
Smart Phone Tablet
JPY 3.2 trillion
Switch
・High spec
・Rich content such as VR
・High spec
・General-purpose design
・Compact
・Low priced
・Compact
・Simple design
with few buttons
Game
(specialized)
Game
(general-
purpose)
PortableConsole
(1)
(2) (3)
(4)
¥570,448 ¥4,749
¥1,523,951 ¥12,686
¥1,515,640 ¥12,617
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Business and cash value Share price breakdown
1) Smart device
2) Game console
3) Cash balance
Divide by total number of
sharesto calculate per-share
Cash balance at end-FY3/16: ¥570bn
Estimated fair value: ¥3.6100tn
Fair value share price: ¥30,051
mn
mn
Ex-cash P/E of 18x applied to FY3/19
operating profit forecast - contribution of smart
devices (¥130.3bn)
Calculated using five-year DCF model.
EV/EBITDA of 16x used for terminal valuemn
21 April 2017
Nintendo (7974) 7
Executive summary
Shrinking market over the last ten years due
probably to Wii’s enormous success
We have little doubt that the market for game consoles is currently shrinking compared
with 2008, a boom period for Wii as well as Nintendo DS. Nintendo, Sony (6758), and
Microsoft are the main players in global game hardware sales. Sales for the three
companies show a sharp decline in volume at Nintendo only. Usually, a hit in the
entertainment business makes it hard to offset a snapback decline. We believe the drop-
off in unit sales since 2008 is due to a snapback decline from Wii’s enormous success and
not to an underlying market contraction.
We think one of the reasons behind the markets’ pessimistic view of the protracted
snapback decline is the overlapping of this period with the emergence of smartphones.
Smartphone adoption started gaining momentum around 2008 with many smartphone-
oriented game titles also being launched at the time. It is quite likely that the smartphone
was a factor in lackluster sales of games hardware, but given the notable differences in
the user interfaces (UI) for consoles and smartphones, we think it is unlikely that the game
business has shifted irreversibly toward smartphones.
Figure 7: No major changes other than
at Nintendo even though most
observers note a contraction
Figure 8: Pessimism fueled by
overlapping of the smartphone’s rise
and the Nintendo console’s fall
Source: VG Chartz, Credit Suisse estimates Source: VG Chartz, Credit Suisse estimates
Dual role as console and portable a strength in
middle-end market
The three main game hardware makers are Nintendo, Sony, and Microsoft. All three are
also game developers, and people often compare hardware to see which products have
higher specs. Looking simply at specs, Nintendo’s hardware lags relative to offerings from
Sony and Microsoft.
Figure 11 is an overview of the positioning of various game hardware products. The
Switch is in a unique position in that it is both a console and a portable gaming device.
Competing devices fall into one of four groups: (1) game consoles, (2) PCs,
(3) smartphones and tablets, and (4) handheld game devices. However, if manufacturers
sought to adjust hardware in any one of these groups to make it more like the Switch, they
would probably have to give up some of the advantages inherent to their previous
positioning. This situation is likely to protect the Switch’s unique position.
0102030405060708090
100
(mn
un
its)
Microsoft
Sony
Nintendo
Wii goes on
sale
Wii U goes on
sale
02004006008001,0001,2001,4001,6001,800
0
20
40
60
80
100
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
(mn
un
its)
(mn u
nit
s)
Game hardware
Smartphone (RHS)
Likely to rank in between Wii, a super
hit, and Wii U, a minor hit
The Switch from a marketing perspective
21 April 2017
Nintendo (7974) 8
Figure 9: Nintendo Switch (TV mode) Figure 10: Nintendo Switch (portable mode)
Source: (C)Nintendo Source: (C)Nintendo
Figure 11: The Switch’s positioning: High barriers to entry
Note: Values represent the market scale of content for each platform. Source: Company data, Credit Suisse estimates, Famitsu Game Hakusho
PS4, Xbox One
JPY 1.4 trillion
PC
JPY 2.2 trillion
3DS,
PS Vita
JPY 0.7 trillion
Smart Phone Tablet
JPY 3.2 trillion
Switch
・High spec
・Rich content such as VR
・High spec
・General-purpose design
・Compact
・Low priced
・Compact
・Simple design
with few buttons
Game
(specialized)
Game
(general-
purpose)
PortableConsole
(1)
(2) (3)
(4)
21 April 2017
Nintendo (7974) 9
Figure 12: Assuming 6x software attach
rate
Figure 13: Hardware uptake should fuel
growth in sales of profit-driver titles
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 14: Extremely positive reaction
to in-house pipeline Figure 15: Broad Switch uptake should boost other company software lineups
Source: Credit Suisse, YouTube
Source: Nintendo Homepage
Nintendo has set up the Nintendo Developer Portal website for developers, to create a
conducive environment for not only corporate but also individual developers. The Switch
development kits are priced at an affordable ¥50,000, which should enable small-scale
and independent software makers and other parties to launch games.
Nintendo’s previous hardware used the company’s own game engines that required much
time and effort on the part of third-party developers. The Switch however, is apparently
compatible with Unity, Unreal Engine 4 (UE4), and numerous other frameworks that are
used widely around the world. In our view, broad uptake of this hardware should naturally
lead to growth in software lineups.
Expect boost to earnings from game app business
Nintendo entered the smart device game app business with the launch last December of
Super Mario Run. We expect the company to launch two to three titles a year and thus
forecast steady sales and profit growth for the game app business. Our FY3/19 and
FY3/20 forecasts for the business assume monthly sales of around ¥12.5bn and ¥20bn,
respectively. This is higher than peak annual sales at GungHo Online (3765) and Mixi
(2121) (¥16–18bn) and is on par with monthly sales in 2015 at Supercell ($200mn). Given
Nintendo’s wealth of well-known IP and its global drive in game apps, we expect sales to
reach $200mn.
3 x
4 x
5 x
6 x
7 x
8 x
9 x
10 xSW attach rate - Total
-200,000
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
OP
(J
PY
mn
)
Other
Smart device
Software
Hardware
70%75%80%85%90%95%100%
05
1015202530
(mn
)
Views Likes
Switch hardware makes software development easy for 3rd-party developers
21 April 2017
Nintendo (7974) 10
Figure 16: Profit sensitivity analysis for the Nintendo Switch and smart device game app businesses
Source: Company data, Credit Suisse estimates
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
0 (70) (20) 30 90 140 190 240 300 350 400
10 (20) 30 90 140 190 240 300 350 400 450
20 30 90 140 190 240 300 350 400 450 510
30 90 140 190 240 300 350 400 450 510 560
40 140 190 240 300 350 400 450 510 560 610
50 190 240 300 350 400 450 510 560 610 660
60 240 300 350 400 450 510 560 610 660 720
70 300 350 400 450 510 560 610 660 720 770
80 350 400 460 510 560 610 660 720 770 820
90 400 460 510 560 610 670 720 770 820 880
Ap
ps M
on
thly
Sale
s
(JP
Y b
n)
FY3/19 OP
(JPY bn)
Nintendo Switch(3year sales forecast '000)
WiiU Wii
21 April 2017
Nintendo (7974) 11
Earnings forecasts
Figure 17: Sales volume assumptions
Source: Company data, Credit Suisse estimates
4Q (Jan–Mar) forecasts
OP: ¥5.3bn loss (guidance ¥6.3bn loss, I/B/E/S consensus ¥600mn)
While Switch production volume looks remarkably strong, the new console was only
launched in March, so we think sales will come in only slightly ahead of the company’s
target (which we estimate at about 2mn units).
Switch assumptions: Fourth-quarter sales of 2.2mn units, retail price of ¥29,800, CoGS of
¥23,000
Game assumptions: In its first fiscal year, the Switch only contributed in March, and its
lineup so far is limited, so we assume a 1.5x attach rate.
FY3/17 forecasts
OP: ¥21.0bn (guidance ¥20.0bn, consensus ¥25.4bn)
Our forecast vs. guidance: Nintendo disclosed revised guidance alongside 3Q results, and
we do not expect any major surprises at the 4Q/full-year results release.
Forex assumptions: ¥110/$, ¥120/€ (same as guidance). For FY3/16, we estimate each
¥1/$ and ¥1/€ fluctuation has an annual OP impact of ¥600mn and ¥800mn respectively.
Switch assumptions: Same as for 4Q (2.2mn units), as the console was launched in March
FY3/18 forecasts
OP: ¥91.3bn (consensus ¥99.8bn)
Smart-device app sales: ¥70bn (annual)
Switch sales: sales of 12mn units (annual), software attach rate of 6x
FY3/19 forecasts
OP: ¥196.7bn (consensus ¥166.0bn)
Smart-device app sales: ¥150bn (annual)
Nintendo Switch sales: 14.67mn units (annual), software attach rate of 6x
(100万円, %) FY3/05 FY3/06 FY3/07 FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15 FY3/16 FY3/17E FY3/18E FY3/19E FY3/20E FY3/17ECoE
Hardware units ('000) 24,580 22,150 34,470 50,670 57,550 47,640 36,210 28,470 23,730 16,310 12,580 10,150 10,400 18,600 20,365 16,732 8,000
Console total 3,930 2,360 6,570 18,770 25,950 20,530 15,080 9,840 7,430 3,940 3,840 3,360 3,000 12,000 14,665 11,732 800
Nintendo Switch - - - - - - - - - - - - 2,200 12,000 14,665 11,732 NA
WiiU - - - - - - - - 3,450 2,720 3,380 3,250 800 - - - 800
Wii 0 0 5,840 18,610 25,950 20,530 15,080 9,840 3,980 1,220 460 110 - - - - -
GC 3,930 2,360 730 160 - - - - - - - - - - - - -
Portable total 20,650 19,790 27,900 31,900 31,600 27,110 21,130 18,630 16,300 12,370 8,740 6,790 7,400 6,600 5,700 5,000 7,200
3DS - - - - - - 3,610 13,530 13,950 12,240 8,740 6,790 7,400 6,600 5,700 5,000 7,200
NDS 5,260 11,460 23,560 30,310 31,180 27,110 17,520 5,100 2,350 130 - - - - - - -
GBA 15,390 8,330 4,340 1,590 420 - - - - - - - - - - - -
Software units ('000) 143,480 142,100 207,720 318,220 402,520 343,400 301,670 199,190 147,020 123,200 98,870 83,210 71,200 111,600 122,190 100,392 69,000
Console total 48,420 32,790 45,640 122,200 204,580 191,810 171,260 102,370 64,030 45,020 36,130 34,690 16,200 72,000 87,990 70,392 14,000
Nintendo Switch - - - - - - - - - - - - 2,200 72,000 87,990 70,392 NA
WiiU - - - - - - - - 13,420 18,860 24,400 27,360 14,000 - - - 14,000
Wii - - 28,840 119,610 204,580 191,810 171,260 102,370 50,610 26,160 11,730 7,330 - - - - -
GC 48,420 32,790 16,800 2,590 - - - - - - - - - - - -
Portable total 95,060 109,310 162,080 196,020 197,940 151,590 130,410 96,820 82,990 78,180 62,740 48,520 55,000 39,600 34,200 30,000 55,000
3DS - - - - - - 9,430 36,000 49,610 67,890 62,740 48,520 55,000 39,600 34,200 30,000 55,000
NDS 10,490 49,950 123,550 185,620 197,310 151,590 120,980 60,820 33,380 10,290 - - - - - - -
GBA 84,570 59,360 38,530 10,400 630 - - - - - - - - - - - -
amiibo units ('000) - - - - - - - - - - 10,500 53,600 16,591 19,909 21,900 22,995 NA
Figurine - - - - - - - - - - 10,500 24,700 7,645 9,175 10,092 10,597 NA
Card - - - - - - - - - - - 28,900 8,945 10,735 11,808 12,398 NA
21 April 2017
Nintendo (7974) 12
Entering strong profit growth stage; target price
calculation based on SOTP
Nintendo’s move into the smart device game app business signals a shift in the company’s
traditional business model. We thus derive our TP for Nintendo using a sum-of-the-parts
model based on (1) Nintendo’s game console business, (2) the smart device game app
business, and (3) cash on hand. Valuation multiples based on our TP do not look that
demanding, in our view, and we see ample room for upside as the market prices in future
profit growth.
Figure 18: Forecasting strong profit growth behind Switch, smart device apps
Source: Company data, Credit Suisse estimates
1. Based on a DCF model, we value the smartphone device business at ¥1.5156tn.
2. For the dedicated game console business, we apply an ex-cash P/E. We value the
dedicated game console business at ¥1.524tn.
3. Our valuation also factors in ¥570bn of cash.
Figure 19: Sum-of-the-parts model-based TP calculation
Source: Company data, Credit Suisse estimates
30 21
115 166 148
1 4
26
66 106
-100
-50
0
50
100
150
200
250
300
FY3/16 FY3/17E FY3/18E FY3/19E FY3/20E
(JP
Y b
n)
Operating ProfitOther
Smard device
Software
Hardware
¥570,448 ¥4,749
¥1,523,951 ¥12,686
¥1,515,640 ¥12,617
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Business and cash value Share price breakdown
1) Smart device
2) Game console
3) Cash balance
Divide by total number of
sharesto calculate per-share
Cash balance at end-FY3/16: ¥570bn
Estimated fair value: ¥3.6100tn
Fair value share price: ¥30,051
mn
mn
Ex-cash P/E of 18x applied to FY3/19
operating profit forecast - contribution of smart
devices (¥130.3bn)
Calculated using five-year DCF model.
EV/EBITDA of 16x used for terminal valuemn
21 April 2017
Nintendo (7974) 13
Business segment overview Nintendo has launched its newest game console, the Nintendo Switch, and has also
moved into smart device game apps. We expect Nintendo will set Switch pricing at a level
that makes it unlikely for the console business to operate at a loss. We also look for steady
profit growth from the smart device game app business. We thus expect a significant
change in Nintendo’s profit structure from FY3/18.
Figure 20: Game software, smart device app business to drive OP growth
Source: Company data, Credit Suisse estimates
Dedicated video game business
Break-even hardware + profitable software business model
Nintendo’s business model is based around establishing a robust installed base of game
consoles to drive game software sales, which is key to recovering profit. Since games
require both the game software and the hardware console, historically the software attach
rate (number of games purchased per console) has consistently been around six. For
sales, the hardware-to-software ratio has also been consistent at around 60/40.
Software is the key to generating profit. Game titles have high operating leverage, which
means even greater contribution to profits once fixed costs are recovered. This trend was
clearly seen from 2007 up to around 2011.
3DS margins eroded following quick price cut
The Nintendo 3DS was first launched in Japan in February 2011 and worldwide the
following month. With an initial price point of ¥25,000, the 3DS was Nintendo’s most
expensive handheld game console. Launch sales were disappointing, and in August—less
than six months after launch—Nintendo announced a drastic price cut to ¥15,000. The
company ultimately sold the initial 3DS at a significant loss, and the hardware business
was deep in the red at the gross profit line in FY3/12. Profitability did improve in FY3/13
owing to cost control efforts and a decline in COGS.
Nintendo has said that the Switch console would be priced to ensure a profit, although we
think the company is referring to gross profit, not operating profit.
30 21
115 166 148
1 4
26
66 106
-100
-50
0
50
100
150
200
250
300
FY3/16 FY3/17E FY3/18E FY3/19E FY3/20E
(JP
Y b
n)
Operating ProfitOther
Smart device
Software
Hardware
Console Game
Apps
Hardware will likely run at an operating loss…
…but should generate a gross profit
21 April 2017
Nintendo (7974) 14
Figure 21: Sales driven by hardware, then software Figure 22: Operating line: losses for hardware,
profits for software
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 23: Gross profit mostly driven by software Figure 24: Hardware GP: lower margins for home vs
handheld
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 25: Sales & profit breakdown: Hardware drives sales, software drives profits
Source: Company data, Credit Suisse estimates
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Sale
s (
JPY
mn
)
Other
Smard device
Software
Hardware
-200,000
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
FY3/
05
FY3/
06
FY3/
07
FY3/
08
FY3/
09
FY3/
10
FY3/
11
FY3/
12
FY3/
13
FY3/
14
FY3/
15
FY3/
16
FY3/
17E
FY3/
18E
FY3/
19E
OP
(J
PY
mn
)
Other
Smart device
Software
Hardware
-200,000
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
GP
(JP
Y m
n)
Other
Smard device
Software
Hardware
August 20113DS price cut from ¥25,000 to ¥15,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000G
P (
JPY
mn
)
Other (Incl. amiibo)
Console
Handheld
Hardware53%
Software46%
Smart device
1%
Other0%
Sales JPY 505bn (FY3/16)*Company data
Hardware31%
Software66%
Smart device
2%
Other1%
Gross Profit JPY221bn (FY3/16)*CS estimate
Hardware4%
Software91%
Smart device
2%
Other3%
Operating Profit JPY33bn (FY3/16)*CSestimate
21 April 2017
Nintendo (7974) 15
Three types of game software (proprietary, second party, third party)
In addition to (1) proprietary titles (Nintendo games using Nintendo IP), there are also
(2) second party titles, which are marketed by the platform holder (i.e., Nintendo) but
based on another company’s IP, and (3) third party titles, which are marketed and
developed completely by an outside company.
For Nintendo, second party games usually have a lower gross margin (GM) but almost the
same operating margin (OPM), since Nintendo doesn’t incur development or other SG&A
costs. In fact, some of the most popular Nintendo IP characters over the years, such as
Pokémon and Kirby, were not Nintendo originals but in fact developed by second party
studios. Nintendo usually counts these games as proprietary titles in its financial
statements with the second party nature stated in the footnotes.
Figure 26: Proprietary vs. second party and third party software
Source: Company data, Credit Suisse estimates
Console pricing set to break even at GP level
Game consoles generally cost around ¥10,000–30,000—a somewhat steep initial entry
cost for the consumer. Companies generally set console prices near break-even. The
priority for the hardware business is establishing a sufficiently large installed base, so
companies are less likely to focus on generating a profit when they set the console price
point. We further note that historically, handhelds have had price points that generated
higher margins than home consoles.
Proprietary 2nd party 3rd party
IP owner Nintendo not Nintendo not Nintendo
Publisher Nintendo Nintendo not Nintendo
IP example
Mario
the legend of Zelda
Splatoon
Animal Crossing
Pokemon
Kirby
Fire Emblem
Dragon Quest
Final Fantasy
Monster Hunter etc.
Materials
Salesrecorded Gross profit
Materials
Gross profit
Salesrecorded
Materials, royalties
Gross profitSalesrecorded
GPM around 90%
GPM
around 70%GPM
around 60%
21 April 2017
Nintendo (7974) 16
Figure 27: Hardware generates almost
no profit
Figure 28: Earnings structure with
high operating leverage means sales
volumes key to profit growth
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Business conditions by region
Nintendo generates about 70% of sales outside of Japan, and currency trends thus have a
significant impact on companywide earnings (see Financial information for details
regarding forex sensitivity). Domestic business margins trend to be relatively stable.
Figure 29: Sales by region
Figure 30: More sales generated
overseas, but domestic margins
higher
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Amiibo included in hardware results; GM estimated at around 40%
Amiibo offerings include figures (figurines) and cards. Figurines are doll-like objects with
embedded NFC (near field communication) chips, while amiibo cards are similar in size to
a regular playing card and also have an embedded NFC chip. Given that the NFC chip
itself is quite inexpensive, we estimate that the amiibo distribution channel margin is in line
with general toy margins, at around 50%, with COGS (input costs, etc.) of about 10%.
Amiibo sales hinge on momentum in popular amiibo-compatible games such as Animal
Crossing and Super Smash Bros. The launch of Super Smash Bros. in FY3/15 and Animal
Crossing: Happy Home Designer in FY3/16 each boosted sales of both amiibo toys and
cards. We think amiibo sales have plateaued somewhat in FY3/17, mainly due to the
dearth of new amiibo-friendly games. FY3/18 should see contributions from the expected
launch of Zelda-themed amiibo offerings in June and Super Smash Brothers offerings in
July, but we do not expect any dramatic rebound in overall amiibo sales volumes.
Hardware
Materials
Gross profit
Earnings limited.Some sales could be made at a loss
GPM
around 5% (200)
0
200
400
600
800
1,000
1,200
JPY
(b
n)
SW sales
HW sales
Total OP
Japan27%
America45%
Europe25%
Other3%
Sales breakdown FY3/16
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
350
400
Japan Overseas
(JP
Y b
n)
Sales OPM(RHS)
Still in start-up phase; launch of new titles
using popular IP should boost GP
21 April 2017
Nintendo (7974) 17
Figure 31: amiibo character figures
(¥1,200 each)
Figure 32: amiibo card sales (¥300 for
pack of three)
Source: (C)Nintendo Source: (C)Nintendo
Figure 33: Roughly 10% GP boost in
FY3/16 amid strong amiibo sales
Figure 34: amiibo use NFC to interact
with supported software for in-game
extras
Source: Company data, Credit Suisse estimates Source: (C)Nintendo
Smart devices and IP-related business
1) Smart device business
Nintendo had traditionally taken a somewhat conservative stance on smart device (mobile)
gaming, but in March 2015 the company announced a capital and business tie-up with
DeNA for mobile and tablet game app development.
The two company presidents, the late Satoru Iwata from Nintendo and DeNA’s Isao
Moriyasu, were both in attendance at the March 2015 joint press conference announcing
the partnership. The deal brought together Nintendo, with its globally popular IP, and
DeNA, with its expertise in web service development, in a collaboration to jointly develop
games for smart devices. The companies also announced that DeNA would develop
Nintendo’s new online membership scheme, “My Nintendo”.
Broadly speaking the partnership primarily involves Nintendo handling front-end game
system development, while DeNA handles the back-end system development and
operation. That said, both companies noted later that the demarcation lines could differ
depending on the game title.
Looking back, we notice that Nintendo’s announcement of its plans for a new gaming
hardware platform (then code-named NX) came at the same time the company was
announcing the DeNA tie-up. At the time, Mr. Iwata commented that he did not want
people to interpret Nintendo’s decision to move into smart device game development as a
sign that the company was pessimistic on the dedicated video game console business.
0%2%4%6%8%10%12%14%
02468
101214
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY3/15 FY3/16 FY3/17
(JP
Y b
n)
GP Estimate total amiibo % of total GP
Figures launched
Card products launched
21 April 2017
Nintendo (7974) 18
As noted above, DeNA is handling the development of Nintendo’s new online membership
platform, My Nintendo. Unlike the smart device business, My Nintendo is being operated
by Nintendo alone. As My Nintendo is an online membership platform, it has minimal
impact on both companies’ earnings.
Figure 35: Smart device app sales
recognition and DeNA revenue
sharing
Figure 36: Nintendo, DeNA ¥22bn
share swap and tie-up (announced 17
March 2015)
Source: Credit Suisse estimates Source: Company data, Credit Suisse
2) IP-related business
Nintendo has leveraged its robust IP portfolio through licensing agreements with third
parties. This is a low-cost business for Nintendo, which recognizes revenue (licensing
fees) from its licensing partners.
For example, last November Nintendo inked an agreement with Universal Parks & Resorts
to bring Nintendo areas to three theme parks in Japan and the US within the next few
years: Universal Studios Japan (USJ), Universal Orlando Resort, and Universal Studios
Hollywood. The USJ project alone entails investment of around ¥50bn, but Nintendo
shoulders none of this. Nintendo expects to recognize licensing fees over time based on
peak performance metrics, rather than as an upfront lump sum.
Figure 37: Nintendo-DeNA tie-up
titles: Targeting 2–3 per year
Figure 38: Nintendo’s robust IP
pipeline: Nintendo IP available without
restriction for the DeNA tie-up
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
PF(Apple/Google), 30%
DeNA, 20%
Nintendo, 50%
0% 20% 40% 60% 80% 100%
Sales booked as gross by
Assuming 50% stake in revenue sharing
10%(JPY 22bn)
1.24%(JPY 22bn)
Nintendo DeNA
Release date Title
3/17/2016 Miitomo
12/15/2016 Super Mario Run (iOS)
2/2/2017 Fire emblem Heroes
3/23/2017 Super Mario Run (Android)
FY2017 Animal crossing
012
34
5
67
89
Ave
rag
e s
ell
ing
un
its
pe
r ti
tle
(m
n)
21 April 2017
Nintendo (7974) 19
Other businesses
Nintendo is predominantly associated with video games, but the company actually started
out as a toy and playing card maker, and continues in these fields even up to this day.
These businesses are relatively stable, although the overall contribution to earnings is
minimal.
Figure 39: Playing cards Figure 40:Hanafuda playing cards
Source: (C)Nintendo Source: (C)Nintendo
New services
While details have not yet been announced, Nintendo has said that the Nintendo Switch
will include a full-featured online subscription service. Traditionally, online multiplayer
gaming was free for users that purchased Nintendo games such as Mario Kart or Splatoon,
but in a 2 February Nikkei article, Nintendo president Tatsumi Kimishima said that Switch
online play would require a paid membership to its new online service, at a cost of around
¥2,000 to ¥3,000 per year. Mr. Kimishima further noted that the service would include
digital download access to classic Nintendo games and a dedicated smartphone chat app.
According to the article, Nintendo’s online membership scheme will likely be cheaper than
the subscriptions charged for similar plans for the Xbox or PS4, which generally cost ¥500
to ¥1,000 per month (annual cost ¥5,000 to ¥12,000).
The official launch of the Nintendo Switch online subscription service is scheduled for
autumn 2017. Users purchasing a Switch console can play on the service for free until it
officially goes live. We have not included any contributions from the online service in our
model.
Cost structure
SG&A cost breakdown assumptions
In general, Nintendo only discloses top-line data, so we need to estimate GP and OP. We
calculate GP by estimating COGS. Then to get OP, we estimate SG&A per segment
(hardware, software, IP-related, etc.), based on each segment’s sales weighting. Even
though we assume that the hardware segment is in the black at the gross profit line, our
model still places the segment is in the red at the operating line after factoring in SG&A
costs. For the smart device app joint venture business with DeNA, our model reflects
platform fees paid to Apple and Google (30%), revenue sharing with DeNA (20%) and
SG&A costs of around 12% of sales from FY3/18. Based on the above we estimate an
OPM of 38% for the smart device game app business.
R&D expenses booked as incurred and not capitalized
Nintendo normally treats all costs related to content development as expenses and
charges these as incurred each fiscal year. It does not capitalize and amortize R&D costs
on the balance sheet. The company’s approach in this regard can be viewed as
conservative.
21 April 2017
Nintendo (7974) 20
Game sector rivals in Japan mostly capitalize content under development and then either
write it off all at one or amortize it piecemeal. This accounting policy enables companies to
match the timing of their sales and cost recognition, but burgeoning cost write-offs at
product launch usually weigh down reported profits and the failure of games to become as
popular as expected leads to impairment risk.
Promotional spend constitutes key cost, but levels kept in check
As earnings volatility is a key attribute in the entertainment business, Nintendo strives to
balance its costs by keeping its promotional spend in check with an annual budget in this
area hovers around 10% of revenues. We note a sharp rise in Nintendo’s key costs,
mostly R&D and wages, during substantial sales growth, but these have usually tracked
steadily thereafter.
Figure 41: Promotional spend budget
at around 10% of sales
Figure 42: Key costs have risen
sharply during substantial sales
growth, but mostly steady recently
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 43: Fixed costs at around
¥100bn result in 50% operating
leverage
Source: Company data, Credit Suisse estimates
0%
2%
4%
6%
8%
10%
12%
14%
0
20
40
60
80
100
120
140
FY3
/00
FY3
/02
FY3
/04
FY3
/06
FY3
/08
FY3
/10
FY3
/12
FY3
/14
FY3
/16
FY3
/18
E
(JP
Y b
n)
Ad. Expense % of Sales
0
50
100
150
200
250
(JP
Y b
n)
Employment Capex Advertising
R&D Depreciation
y = 0.4748x - 95644R² = 0.968
-100
100
300
500
700
900
0 1,000 2,000
Gross profit since FY3/08
Linear (Gross profit since FY3/08)(GP, JPY bn)
(Sales, JPY bn)
21 April 2017
Nintendo (7974) 21
Investment case: Mobile apps and the Switch both earnings growth drivers
Initiating at NEUTRAL with ¥30,000 TP
Figure 44: Nintendo (7974) – Earnings summary
Source: Company data, I/B/E/S, Credit Suisse estimates
Forecast Nintendo Switch adoption on par with
Super Famicom
Shrinking market over the last ten years due probably to Wii’s enormous success
We have little doubt that the market for game consoles is currently shrinking compared
with 2008, a boom period for Wii as well as Nintendo DS. Nintendo, Sony, and Microsoft
are the main players in global game hardware sales. Sales for the three companies show
a sharp decline in volume at Nintendo only. Usually, a hit in the entertainment business
makes it hard to offset a snapback decline after a major success. We believe the drop-off
in unit sales since 2008 is due to a snapback decline from Wii’s enormous success and
not to an underlying market contraction.
We think one of the reasons behind the market's pessimistic view of the protracted
snapback decline is the overlapping of this period with the emergence of smartphones.
Smartphone adoption started gaining momentum around 2008, with many smartphone-
oriented game titles also being launched at the time. It is quite likely that the smartphone
was a factor in lackluster sales of games hardware, but given the notable differences in
the UIs for consoles and smartphones, we think it is unlikely that the game business has
shifted irreversibly toward smartphones.
EV
/EBITDADPS P/E
¥26,815 ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) (x) ¥ (x)
FY
Mar-16 A 504.5 -8.2% 32.9 32.7% 28.8 -59.2% 16.5 -60.6% 137.4 -61.1% 33.1 150.0 195.1
Mar-17 CS E (new) 416.0 -17.5% 21.0 -36.1% 23.3 -18.9% 85.5 418.2% 712.0 418.2% 86.9 356.0 37.7
CoE 470.0 -6.8% 20.0 -39.2% 30.0 4.2% 90.0 445.2% 749.2 445.2% NA 380.0 35.8
IBES E 475.4 -5.8% 25.8 -21.4% 57.3 99.2% 90.5 448.2% 769.9 460.3% 73.4 387.7 34.8
Mar-18 CS E (new) 888.9 113.7% 91.3 334.8% 105.7 352.8% 69.7 -18.5% 580.6 -18.5% 26.2 290.3 46.2
IBES E 743.0 56.3% 103.0 298.7% 121.9 112.6% 81.6 -9.9% 677.3 -12.0% 22.7 325.1 39.6
Mar-19 CS E (new) 1,140.8 28.3% 196.7 115.4% 211.1 99.7% 141.4 102.8% 1,177.3 102.8% 12.6 588.6 22.8
IBES E 904.7 21.8% 170.3 65.3% 190.5 56.2% 125.9 54.4% 1,058.1 56.2% 14.2 556.4 25.3
Mar-20 CS E (new) 1,137.6 -0.3% 236.0 20.0% 250.4 18.6% 167.7 18.6% 1,396.3 18.6% 10.2 698.1 19.2
IBES E 1,006.9 11.3% 232.9 36.8% 249.9 31.2% 170.0 35.0% 1,387.8 31.2% 8.4 837.5 19.3
Quarter
Mar-17 Q1 A 62.0 -31.3% -5.1 NM -38.7 NM -24.5 NM
Q2 A 74.8 -34.3% -0.8 NM 7.8 262.4% 62.8 1,874.6%
Q3 A 174.3 -21.3% 32.3 -3.7% 80.0 105.9% 64.7 122.3%
Q4 CS E (new) 104.9 33.2% -5.3 NM -25.8 NM -17.4 NM
CoE 158.9 101.6% -6.3 NM -19.1 NM -13.0 NM
IBES E 161.0 104.3% 0.6 NM -5.2 NM -9.1 NM
EPS20-Apr-17 Sales Operating profit Recurring profit Net profit
Likely to rank in between Wii, a super
hit, and Wii U, a minor hit
21 April 2017
Nintendo (7974) 22
Figure 45: No major changes other
than at Nintendo even though most
observers note a contraction
Figure 46: Pessimism fueled by
overlapping of the smartphone’s rise
and the Nintendo console’s fall
Source: Credit Suisse, VG Chartz Source: Credit Suisse, VG Chartz
Figure 47: Nintendo’s overseas unit
sales responsible for the contraction
in market size
Figure 48: Major home game console
sales mostly in overseas markets
Source: Company data, Credit Suisse estimates Source: Credit Suisse, VG Chartz
Ample demand for Nintendo game consoles
Nintendo’s home game consoles have historically been more popular in America and
Europe. For example, overseas sales accounted for 65% of Nintendo 3DS sales, but for
the Wii the figure was 88%.
Figure 49: Handheld 3DS’ domestic
weighting high…
Figure 50: Wii console sales mostly in
Europe/US
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
0102030405060708090
100
(mn
un
its)
Microsoft
Sony
Nintendo
Wii goes on
sale
Wii U goes on
sale
02004006008001,0001,2001,4001,6001,800
0
20
40
60
80
100
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
(mn
un
its)
(mn u
nit
s)
Game hardware
Smartphone (RHS)
11 6 6 5 6 7 5 4 3
20 25 2217 12 10
6 5 4
2126
19
1411
75
4 3
0
10
20
30
40
50
60
70
(mn
un
its)
Nintendo EU
Nintendo US
Nintendo Japan
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Nintendo Sony Microsoft
Japan
Europe
USA
Japan35%
US34%
EU31%
3DS
Japan12%
US48%
EU40%
Wii
Home game consoles popular in Europe and
the US
21 April 2017
Nintendo (7974) 23
One way to measure “propensity to consume” as it relates to video games is to look at
total consumer spending on video games as a percentage of GDP (Figure 51). We can
further measure “propensity to consume” as it relates to Nintendo games by looking at
total spending on Nintendo games as a percentage of total video game consumption
(Figure 52).
While propensity to consume for video games in general is relatively high in Asia,
Nintendo games have a high propensity to consume in the US, the major game console
market. We see this as solid evidence of Nintendo’s strong brand in the US.
Figure 51: Game expenditure and
propensity to consume
Figure 52: Nintendo propensity to
consume particularly high in the US
Note: Inclination for game consumption comes from an index of game expenditure per GDP Source: IMF, Famitsu game White Paper 2016, Credit Suisse
Note: Nintendo inclination comes from an index Nintendo expenditure per total game expenditure Source: Company data, Credit Suisse estimates
Launch of new game hardware a major boost to game software sales
Nintendo also has strong sales capabilities for in-house developed games. Historically,
around 30% of games that have sold at least a million copies on the Nintendo platform
were Nintendo-developed games. We think that this strong lineup of proprietary titles is
one reason why people choose to purchase a Nintendo console.
A console’s software attach rate measures how many games are sold for every hardware
unit purchased. Historically, attach rates have been around six. Game software titles
generally have high operating leverage, so higher attach rates should boost profits. We will
be keeping a close eye on the Switch’s attach rate during its initial launch phase.
Figure 53: Our model assumes an
attach rate of six for Nintendo Switch
Figure 54: Approx. 30% of Nintendo’s
million-sellers are in-house titles
Note: Single year tie ratio Source: Company data, Credit Suisse estimates
Note: Based on games selling at least one million copies on a Nintendo platform Source: Company data, Credit Suisse estimates
0
2
4
6
8
10
12
14
16
18
20
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Asia US EU
Millio
ns (
JPY
)
Game expenditure Inclination for game consumption
0.00
5.00
10.00
15.00
20.00
25.00
30.00
0.000.200.400.600.801.001.201.40
Asia US EUNintendo inclination
Inclination for game consumption
3 x
4 x
5 x
6 x
7 x
8 x
9 x
10 xSW attach rate - Total
33%34%
28%29%32%
25%
30%
34%
41%
32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
50
100
150
200
250
300
350
400
450
FY3
/07
FY3
/08
FY3
/09
FY3
/10
FY3
/11
FY3
/12
FY3
/13
FY3
/14
FY3
/15
FY3
/16
(mn
un
its)
Total
Of which proprietary million-seller titles
Share of proprietary million-seller titles
Nintendo brand particularly strong in
the US
Earnings sensitive to attach rates
21 April 2017
Nintendo (7974) 24
In-house titles, key earnings drivers, are already popular
When Nintendo unveiled the Switch on 13 January, it also announced a number of launch
titles, including The Legend of Zelda: Breath of the Wild. A trailer for the new Zelda title
had a 99% approval rating on YouTube as of January.
According to the Famitsu game magazine, the new Zelda title has sold very well since its 3
March launch, with 450,000 copies sold in Japan alone (as of 2 April; 350,000 for the
Switch and 100,000 for the Wii U). Previous Zelda titles have had over 90% of sales come
from overseas, suggesting potential overseas demand for the new Zelda title of 4.5mn
copies. We suspect that hardware production may not be keeping up with demand.
Figure 55: User interest in new
Nintendo Switch titles
Figure 56: High ratings for new titles
in established game series
Note: Compiled by Credit Suisse based on number of YouTube views (as of 24 January 2017) Source: Credit Suisse, YouTube
Note: Compiled by Credit Suisse based on number of YouTube views (as of 24 January 2017) Source: Credit Suisse, YouTube
Figure 57: Average game title sales/overseas ratio by IP
Source: Company data, Credit Suisse estimates
Zelda27%
ARM7%
1-2 Switch
5%
Mario Kart12%
Splatoon 28%
Super Mario
Odyssey41%
70%75%80%85%90%95%100%
05
1015202530
(mn
)
Views Likes
0%10%20%30%40%50%60%70%80%90%100%
02468
101214161820
(mn
un
its)
Overseas Japan Overseas weighting
Zelda trailer receives 99% approval rating
21 April 2017
Nintendo (7974) 25
Software developers should find it easy to develop games for Switch
Game developers have traditionally struggled, both in terms of time and effort, to create
games for Nintendo consoles, which have tended to have Nintendo-specific “quirks.”
However, we understand that Nintendo Switch will support a number of globally popular
middleware game engines, including Unity and Unreal Engine 4. Steady growth in the
Switch install base should naturally lead to further expansion of the game software lineup.
The company has set up Nintendo Developer Portal as a platform for both organizations
and individuals to download tools for developing Nintendo platform games. Acquiring the
necessary development hardware is not that expensive (only around ¥50,000), which
should encourage indie developers and others to develop Nintendo Switch games.
Figure 58: Higher adoption of Nintendo Switch to
boost expectations for an enhanced third-party
software lineup
Figure 59: Major titles for Nintendo Switch
Source: Nintendo Homepage Note (1): Highlighted titles represent in-house software Note (2): The Legend of Zelda: Breath of the Wild also released simultaneously for Wii U Source: Company data, Credit Suisse estimates
Life cycle for hardware runs for about five years
The hardware cycle is unlikely to change substantially over the medium term. That said,
sales cycles tend to be shorter for consoles than handhelds.
It takes about three years for penetration trends to become clear. In contrast with trends
for software, hardware sales are more likely to be concentrated in a product’s third year on
the market rather than its first. This is because a full slate of software titles is typically not
available until year three.
Figure 60: Compared with handheld consoles, campaigns for home game systems tend to be short and
decisive
Note: Shading (from dark to light) represents 20%+, 10%+ and above 5%+ of cumulative sales Source: Company data, Credit Suisse estimates
Release date Title Price Developer
3/3/2017 1-2-Switch ¥4,980 Nintendo
3/3/2017 The Legend of Zelda: Breath of the Wild ¥6,980 Nintendo
3/3/2017 I am Setsuna ¥4,800 SQEX
3/3/2017 Nobunaga's Ambition: Sphere of Influence ¥9,800 KoeiTecmo
3/3/2017 SUPER BOMBERMAN R ¥4,980 KONAMI
3/3/2017 DRAGON QUEST HEROES I-II ¥8,800 SQEX
3/3/2017 Puyopuyo Tetris S ¥4,990 SEGA
3/3/2017 Disgaea: Hour of Darkness ¥6,980 Nippon Ichi Software
3/3/2017 Snipperclips – Cut it out, together! ¥1,667 Nintendo
3/30/2017 Romance of the Three Kingdoms XIII ¥9,800 KoeiTecmo
4/28/2017 MARIO KART 8 DELUXE ¥5,980 Nintendo
5/26/2017 ULTRA STREET FIGHTER II ¥4,990 CAPCOM
6/16/2017 ARMS ¥5,980 Nintendo
7/21/2017 Splatoon 2 ¥5,980 Nintendo
2017 Autumn Fire Emblem Warriors KoeiTecmo
2017 Winter SUPER MARIO ODYSSEY Nintendo
TBU FIFA 18 Electronic Arts
TBU Project OCTPATH TRAVELER SQEX
TBU DRAGONBALL XENOVERSE 2 BandaiNamco
Sales units ('000) FY3/90 FY3/91 FY3/92 FY3/93 FY3/94 FY3/95 FY3/96 FY3/97 FY3/98 FY3/99 FY3/00 FY3/01 FY3/02 FY3/03 FY3/04 FY3/05 FY3/06 FY3/07 FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15 FY3/16 FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E 累計
FC 10,970 6,520 10,430 7,990 3,530 1,110 400 80 80 30 50 41,190
SFC 1,440 6,000 13,030 11,060 4,410 5,780 3,300 1,850 1,530 130 48,530
N64 6,110 10,020 7,960 6,490 2,840 500 10 33,930
GC 3,800 5,750 5,030 3,930 2,360 730 160 21,760
Wii 5,840 18,610 25,950 20,530 15,080 9,840 3,980 1,220 460 110 101,620
Wii-U 3,450 2,720 3,380 3,250 800 13,600
Switch 2,200 12,000 14,665 11,732 8,799 49,396
GB 2,840 8,060 10,670 7,800 7,470 5,580 4,160 7,090 11,020 13,550 17,450 18,870 4,690 280 119,530
GBA 1,070 17,090 15,650 17,600 15,390 8,330 4,340 1,590 420 81,480
NDS 5,260 11,460 23,560 30,310 31,180 27,110 17,520 5,100 2,350 130 153,980
3DS 3,610 13,530 13,950 12,240 8,740 6,790 7,400 6,600 5,700 5,000 4,500 88,060
21 April 2017
Nintendo (7974) 26
Figure 61: Historical hardware sales, by console
Source: Company data, Credit Suisse
Expect Switch install base to match that of SNES
A look at cumulative hardware sales for Nintendo and other makers’ consoles shows a
wide range of outcomes, but the general pace of install base growth is actually fairly
consistent.
Our forecast is that cumulative Nintendo Switch sales will reach around 49mn units in the
first five years (through end-FY3/21). Compared to Nintendo’s previous consoles, this
would be slightly better than the SNES (Super Famicom). While 49mn units would pale in
comparison with Wii volume (over 100mn), it should be seen as an undoubted success.
Figure 62: Pace of game hardware
adoption
Figure 63: Pace of build-up in unit
sales
Note: Month-aligned with hardware launch Source: Company data, VG Chartz, Credit Suisse estimates
Note: Month-aligned with hardware launch Source: Company data, VG Chartz, Credit Suisse estimates
Figure 64: Expect Switch to outsell
SNES
Figure 65: Three scenarios for pace of
Switch install base growth
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
GB, 65
GBA, 82
NDS, 154
3DS, 62
N64, 27 NGC, 22
Wii, 102
Wii U, 13
0
20
40
60
80
100
120
140
160
180
(mn
un
its)
GB GBA NDS 3DS N64 NGC Wii Wii U
0 20 40 60
3DS
Wii
PS3
WiiU
XOne
PS4
NintendoSwitch(Est.)
Million units
Year1
Year2
Year3
0% 50% 100%
3DS
Wii
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WiiU
XOne
PS4
NintendoSwitch(Est.) Year1
Year2
Year3
0
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1yr 2yr 3yr 4yr 5yr
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Wii-U
Switch (Base case)
0
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50
60
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90
1yr 2yr 3yr 4yr 5yr
(mn
un
its)
Switch (Base case)
Switch (Bull case)
Switch (Bear case)
In line with Wii
In line with Wii U
Forecast level for Switch
Forecast cumulative sales of 49mn units in
first five years
21 April 2017
Nintendo (7974) 27
Figure 66: Our forecast for cumulative console unit sales as of end-FY3/21
Source: Company data, Credit Suisse estimates
Figure 67: High earnings exposure to the Switch and mobile apps
Source: Company data, Credit Suisse estimates
Figure 68: Console numbers and software attach rate have significant impact on OP
Source: Company data, Credit Suisse estimates
4934
22
102
14
49
120
81
154
88
020406080
100120140160180
SUPERFamicom
(Super NES)
N64 Game Cube Wii Wii-U Switch Game Boy GAMEBOYADVANCE
NDS 3DS
Console Console Console Console Console Console Portable Portable Portable Portable
(mn
un
its)
as of end-FY3/21
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
0 (70) (20) 30 90 140 190 240 300 350 400
10 (20) 30 90 140 190 240 300 350 400 450
20 30 90 140 190 240 300 350 400 450 510
30 90 140 190 240 300 350 400 450 510 560
40 140 190 240 300 350 400 450 510 560 610
50 190 240 300 350 400 450 510 560 610 660
60 240 300 350 400 450 510 560 610 660 720
70 300 350 400 450 510 560 610 660 720 770
80 350 400 460 510 560 610 660 720 770 820
90 400 460 510 560 610 670 720 770 820 880
Ap
ps M
on
thly
Sale
s
(JP
Y b
n)
FY3/19 OP
(JPY bn)
Nintendo Switch(3year sales forecast '000)
WiiU Wii
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
2 x 60 60 60 60 60 60 60 60 60 70
3 x 70 80 90 90 100 110 120 120 130 140
4 x 90 100 110 130 140 160 170 190 200 210
5 x 100 120 140 160 180 200 230 250 270 290
6 x 110 140 170 200 220 250 280 310 340 360
7 x 130 160 200 230 270 300 330 370 400 440
8 x 140 180 220 260 310 350 390 430 470 510
9 x 150 200 250 300 350 400 440 490 540 590
10 x 170 220 280 330 390 440 500 550 610 660
11 x 180 240 300 370 430 490 550 610 680 740
Nintendo Switch(3year sales forecast '000)
Att
ach r
ate
FY3/19 OP
(JPY bn)
WiiWiiU
WiiU
Wii
21 April 2017
Nintendo (7974) 28
Figure 69: Profit and sales volume forecasts
Source: Company data, Credit Suisse estimates
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
FY3
/90
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/91
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/92
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E
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/18
E
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/19
E
FY3
/20
E
3DS NDSGBA GBSwitch Wii-UWii GCN64 SFCFC OP total (RHS)
('000 units) (JPY mn)
21 April 2017
Nintendo (7974) 29
Nintendo’s smart device application
Plateau in developed economies’ smartphone uptake; a mature market means potential growth in content consumption
Super Mario Run, Nintendo’s first genuine smartphone game released in December 2016,
drew widespread attention. Users from around the globe played the title, and the game’s
download numbers went on to set a new App Store record. From the standpoint of the
games market, the introduction of a ¥1,200 ($9.90) one-time fee model for playing Super
Mario Run beyond a certain level was a unique innovation. This leads us to believe
Nintendo is not counting on the emergence of high-value customers, but is instead aiming
to spread out its fee model thinner and wider. Nintendo’s internal target for the ratio of fee-
paying Super Mario Run users seemed to have been just above 10%, but in an interview
(2 February Nikkei) President Kimishima stated that the actual ratio of fee-paying users
was in the high single-digits. Moreover, based on his comments that sales of Super Mario
Run in the world's 20 largest economies account for over 90% of the game’s total sales,
we believe that billing was robust in developed markets but somewhat weaker in emerging
markets than the company planned.
Considering Nintendo’s stance not to proactively engage in developing high-value gamers,
we think it is fair to conclude that room for growth in users, the ratio of fee-paying users
represents the real potential of smart devices.
Figure 70: Sharp increase in content
platform following emergence of
smartphones
Figure 71: Time to aim for upside in a
mature market than to look for upside
in wider adoption
Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates
Figure 72: Unit volume growth
prospects mostly in Asia, but outlook
on content consumption uncertain
Figure 73: More room for growth in
content consumption on smartphones
vs. home video game software
Source: Credit Suisse estimates Source: Company data, VG Chartz, Credit Suisse estimates
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2008 2009 2010 2011 2012 2013 2014 2015 2016
(mn u
nits)
Portable Game
Console Game
Smartphone
PC
0%
20%
40%
60%
80%
100%
120%
0
200
400
600
800
1,000
1,200
1,400
1,600
mn
un
its
Emerging markets Developed markets
YoY % chg. In Emerging markets YoY % chg. In Developed markets
Estimate
0
200
400
600
800
1,000
1,200
1,400
1,600
(mn
un
its)
CEMA
Latin America
Rest of Asia Pacific
China
¥0
¥500
¥1,000
¥1,500
¥2,000
¥2,500
Home game
console
Smartphone PC
Game content consumption per device (CY15)
21 April 2017
Nintendo (7974) 30
Figure 74: Smart-device business likely
to see sharp sales and profit growth
Figure 75: Smart device app sales
recognition and DeNA revenue
sharing
Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates
Figure 76: Nintendo-DeNA tie-up
titles: Targeting 2–3 per year
Figure 77: Nintendo’s robust IP
pipeline: Nintendo IP available without
restriction for the DeNA tie-up
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
Figure 78: Significant room, particularly at Nintendo, for content sales per
smartphone; fee levels still considerably low
Note: Figures other than Nintendo based on domestic smartphone volume; Nintendo data based on global volume excluding certain regions Source: Company data, Credit Suisse estimates
0
50
100
150
200
250
(JP
Y b
n)
Smart device Sales
Smart device OP
PF(Apple/Google), 30%
DeNA, 20%
Nintendo, 50%
0% 20% 40% 60% 80% 100%
Sales booked as gross by
Assuming 50% stake in revenue sharing
Release date Title
3/17/2016 Miitomo
12/15/2016 Super Mario Run (iOS)
2/2/2017 Fire emblem Heroes
3/23/2017 Super Mario Run (Android)
FY2017 Animal crossing 012
34
5
67
89
Ave
rag
e s
ell
ing
un
its
pe
r ti
tle
(m
n)
¥0
¥100
¥200
¥300
¥400
¥500
¥600
¥700
¥800
¥900
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
CY12 CY13 CY14 CY15 CY16
(Sale
s p
er
sm
art
ph
one)
Nintendo
SQEX
KONAMI
Bandai Namco
GungHo
mixi
CyberAgent
COLOPL
DeNA
GREE
21 April 2017
Nintendo (7974) 31
Figure 79: Domestic publishers in the mobile game market
Source: Company data, Credit Suisse estimates
For package game companies, apps reduce sales volatility
Development over several years is normal in the package game business. However,
companies are now lowering exposure to sales volatility through stable mobile titles.
Furthermore, bolstering of IP often acts as a sales promotion boost for the IP’s games
software.
Figure 80: Square Enix example
Figure 81: Pokémon app launch also
functioning as a means for sales
promotion
Source: Company data, Credit Suisse estimates Source: Famitsu, Credit Suisse estimates Note: Data for Pokémon Omega Ruby and Alpha Sapphire
How Square Enix monetizes older titles
Not too long ago there was almost no overlap between smartphone (mobile) games and
console games, but this is slowly changing. For example, Square Enix has developed
stand-alone, one-time purchase mobile ports of its popular Dragon Quest series,
establishing a new monetization channel for older titles.
In general, mobile games have traditionally needed to offer regular events and other
special in-game campaigns to keep users engaged, requiring a certain number of
employees to continue working on the game. The mobile game market overall continues to
grow, yet there has not been any significant increase in the number of people working in
the mobile gaming industry, which instead is facing chronic staff shortages.
Headcount requirements are less of a burden, however, if console content is converted to
mobile and sold as stand-alone, one-time purchases. We note that the mobile ports of
Dragon Quest sell for around ¥1,800–2,800 per title, which is quite high for older titles.
¥0
¥50
¥100
¥150
¥200
¥250
¥300
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
CY12 CY13 CY14 CY15 CY16
(bn
)
Nintendo
Ateam
Aniplex
Sega
Konami
GREE
SQEX
CyberAgent
BandaiNamco
mixi
DeNA
LINE
Colopl
GungHo
0
10
20
30
40
50
60
70
80
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY3/15 FY3/16 FY3/17
(JP
Y b
n)
OtherMobile game
0
50
100
150
200
250
300
350
400
Apr May Jun Jul Aug Sep Oct
('000 u
nits)
Repeat sales: after Pokemon Go
Repeat sales: stable level
Over ¥6bn in global
repeat sales
21 April 2017
Nintendo (7974) 32
Nintendo has said that it would not simply port older console titles to mobile. We think,
however, that this avenue remains a potential long-term option for games that can be
enjoyed even given the limited functionality of smartphones as a gaming device.
Figure 82: Lack of growth in number
of people working in gaming
industry…..
Figure 83: … could be one factor
behind peak-out of domestic
smartphone game market
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 84: With no increase in number
of people working in Japan’s gaming
industry, companies will need to find
ways to raise earnings with existing
number of workers
Figure 85: Porting of Dragon Quest as
a smartphone app; unit price high in
one-time sale model
Note: Console games represent combined total for Nintendo, Square Enix, Konami, Bandai Namco, Capcom, and Koei Tecmo; mobile games represent combined total as shown in Figure 82 Source: Company data, Credit Suisse estimates
Source: Company data, Credit Suisse, AppAnnie
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY2012 FY2013 FY2014 FY2015
nu
mb
er
of
em
pll
oye
es
mixi
GungHo
DeNA
Colopl
GREE
Ateam
gumi0
50
100
150
200
250
300
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
CY13 CY14 CY15 CY16
(JP
Y b
n)
Major 10 publishers
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
FY2012 FY2013 FY2014 FY2015
nu
mb
er
of
em
pll
oye
es
Console game Mobile game
21 April 2017
Nintendo (7974) 33
The Switch from a marketing perspective
Dual role as console and portable a strength in
middle-end market
The three main game hardware makers are Nintendo, Sony, and Microsoft. All three are
also game developers, and people often compare hardware to see which products have
higher specs. Looking simply at specs, Nintendo’s hardware lags relative to offerings from
Sony and Microsoft.
Figure 86: Nintendo’s hardware lags peers’ in terms of specs…
Note: Nintendo hardware in red. Source: Company data, Credit Suisse estimates
Figure 87 is an overview of the positioning of various game hardware products. The
Switch is in a unique position in that it is both a console and a portable gaming device.
Competing devices fall into one of four groups: (1) game consoles, (2) PCs,
(3) smartphones and tablets, and (4) handheld game devices. However, if manufacturers
sought to adjust hardware in any one of these groups to make it more like the Switch, they
would probably have to give up some of the advantages inherent to their previous
positioning.
PS4
XboxOne
Switch
WiiU
PSP
3DS
PSV
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0 2 4 6 8 10
(GH
z)
CoreLow-end
High-end
Middle-end in terms of specs
21 April 2017
Nintendo (7974) 34
Figure 87: The Switch’s positioning: High barriers to entry
Source: Company data, Credit Suisse estimates, Famitsu Game Hakusho Note: Values represent the market scale of content for each platform.
A look at the Switch’s potential competition
(1) Consoles
Because the Switch does double duty as a console and a portable game device, the
tradeoff is that Nintendo had to cut some of the higher-spec features commonly featured in
consoles. Similarly, VR and other high-end content is often associated with consoles, but it
will probably be a while before these offerings are adapted to handhelds/portables.
Figure 88: PlayStation VR
Figure 89: The compact Xbox One S is
about 3kg and not very portable
Source: Sony Source: Amazon.co.jp (official Microsoft store)
(2) PCs
PCs are not necessarily the best devices for games because of their keyboards and
various peripherals. While a segment of the market is strongly devoted to PC gaming, this
segment is more likely to be concerned with gameplay rather than portability. Even if PCs
were portable, this segment would probably not find much incentive to make use of this
functionality. Another concern for this segment would be that handheld devices might not
be able to offer the same connectivity options and other features necessary in PC gaming.
PS4, Xbox One
JPY 1.4 trillion
PC
JPY 2.2 trillion
3DS,
PS Vita
JPY 0.7 trillion
Smart Phone Tablet
JPY 3.2 trillion
Switch
・High spec
・Rich content such as VR
・High spec
・General-purpose design
・Compact
・Low priced
・Compact
・Simple design
with few buttons
Game
(specialized)
Game
(general-
purpose)
PortableConsole
(1)
(2) (3)
(4)
21 April 2017
Nintendo (7974) 35
While penetration rates for PCs are high, the percentage of PC users that play PC games
is not. Similarly, the base of PC gamers is known for its stability in terms of scale, so we
doubt the player base would move to a different platform.
(3) Smartphones and tablets
While it would not be that difficult to use smartphones and tablets as consoles, their main
appeal is their smaller size, so the advantages of making a larger smartphones/tablet for
dual console/portable use are unclear. Similarly, the mainstream in smartphones/tablets is
to minimize buttons in favor of touch panel space, so designs optimizing these devices for
gameplay (adding controllers) does not seem likely.
While a number of controllers are on the market that improve the use of smartphones for
gameplay, their designs have yet to win over consumers.
Figure 90: MFi (made for iPhone/iPad)
controllers (¥12,800) Figure 91: Sony’s Xperia PLAY
Source: Apple (website) Note: Gamevice Controller for iPhone 6/6s and iPhone 6/6s Plus
Source: Sony Note: On sale from October 2011
(4) Handhelds
Handheld game devices are potential competitors for the Switch. Handhelds are optimized
for gaming, and with a few tweaks to sizes and specs they could compete with the Switch.
The concern is that this could lead the Switch’s positioning and that of handhelds to
overlap.
At this point, Nintendo’s 3DS has about 80% of the market for handhelds (hardware).
Nintendo has already made the 3DS into one of the key pillars of its business. How the
company positions the 3DS and other handhelds after the launch of the Switch (whether,
for example, it emphasizes synergies with the Switch or whether the Switch cannibalizes
the 3DS user base) will be a major factor determining longer-term earnings.
While it is unclear in some regards how consumers will take to the Switch’s interface,
handhelds are in a clearly superior position with respect to pricing. The Switch sells for
¥29,800, while a new 3DS goes for ¥16,000 and the entry-level 2DS sells for ¥9,800.
These products differ significantly in terms of specs, of course, but we doubt demand for
low-priced gaming will decline substantially. Sony’s PS Vita is the most expensive
handheld (¥18,980), and Sony does not have a low-end model in its lineup. In this sense,
Nintendo is better hedged against risk of cannibalization.
21 April 2017
Nintendo (7974) 36
Figure 92: 3DS dominates the
handheld market
Figure 93: Lower prices still a strength
of handhelds
Source: VG Chartz, Credit Suisse Source: Company data, Credit Suisse
Figure 94: The Nintendo 2DS was
launched in October 2013
Figure 95: 2DS sales since launch
total around 7mn worldwide
Source: (C)Nintendo Source: Company data, Credit Suisse
0
10
20
30
40
50
60
70
3DS PSVita
Mill
ion
uni
ts
Selling Price
Nintendo Switch ¥29,980
PS Vita ¥18,980
New 3DS ¥16,000
2DS ¥9,800
2,200
1,550
1,170
2,170
0
500
1,000
1,500
2,000
2,500
FY3/2014 FY3/2015 FY3/2016 FY3/2017(1-3Q)
('0
00
un
its)
2DS
21 April 2017
Nintendo (7974) 37
Need to monitor hardware market segmentation
We believe it will take 3−5 years for the Switch to win penetration, then a few more years
to have a clear picture of the state of play with respect to synergies/cannibalization.
Traction for the new system will be a point to watch, as will changes in the positioning of
other hardware options.
Figure 96: Handhelds and the Switch: Three positioning scenarios
Source: Company data, Credit Suisse estimates
Positive scenario: Synergy effects
Base scenario: Differentiation
Negative scenario: Cannibalization
3DS,
PS Vita
Switch
Portable
3DS,
PS VitaSwitch
3DS,
PS VitaSwitch
21 April 2017
Nintendo (7974) 38
Redefining the casual game
Content value the sum of core value and peripheral
value
Defining core value vs. peripheral value
When we purchase an item, we are making a statement about the value we place not just
on the item itself but on its peripheral value. For example, if we purchase a video game, a
direct reason may be "because we think the game will be fun to play", but there may be
other reasons as well, such as “the commercial was interesting” or “all my friends are
playing it” or “I could afford it”. We define core value and peripheral value as follows:
■ Core value: Value attached to the content itself
e.g., for video games, the value of the game as envisioned by the developers,
playability, etc.
■ Peripheral value: Value peripheral to the game itself
e.g., popularity, appealing commercials, pricing, ability to play in small blocks of time
etc.
More ways to enjoy content means fewer shared game experiences?
Users now have almost unimaginable freedom when it comes to choosing how to
consume content. We believe this shift to ‘anytime, anywhere’ is clearly an advantage in
terms of convenience–itself a peripheral value. However, this author’s view is that this has
come at the cost of reduced peripheral value of another kind: sharing the experience with
others.
In the past, for example, people used to talk about the TV shows they had both seen the
previous night. Nowadays it is less common to meet people in person that watched the
exact same show or episode the previous night. Instead, these discussions that used to
happen face to face now take place on online bulletin boards and forums that often allow
users to upload or interact with video or other game-related content.
Figure 97: More avenues to consume content
Source: Credit Suisse estimates
Most important peripheral value for games is sharing the game experience
Focusing purely on games, “the more the merrier”, seems to apply when it comes to the
number of players. Mobile games in particular can jump in popularity thanks to advertising
and promotions, and games that gain in popularity tend to be games that let users play
with or against either real-life friends or against virtual ‘friends’ online (that the gamer may
or may not know in real life).
TV Movies PCGame
consoles
Smartphones,
tabletsBooks
TV
programsMovies Games
Comics,
magazines
Cross-border, multi-device
trend
21 April 2017
Nintendo (7974) 39
Figure 99 maps the level of shared experience based on user base (number of players)
and whether in-game communication is with ‘real’ friends or ‘virtual’ friends. The closer a
game is to the bottom right corner, the more the game can be viewed as a core game,
while games in the upper left are peripheral games.
Figure 98: Core value vs. peripheral
value
Figure 99: Game genre mapping: Core
in bottom right, peripheral in upper
left
Source: Company data, Credit Suisse Source: Credit Suisse
Peripheral value is eventually lost; only core value remains
■ Pokémon Go a good example of a game with enormous peripheral value
We see Pokémon Go as a classic example of a game with enormous peripheral value: a
gaming phenomenon with a broad user base that encouraged real-life interaction. Many
users apparently started playing Pokémon Go because it was really popular or it was fun
playing with friends. In fact, we believe the best evidence of its peripheral value is that the
precipitous fall-off in users as the surge in popularity was followed by an equally rapid fade.
According to media analytics company comScore, the number of Pokémon Go users as of
December 2016 had declined to around 20% of peak users (July 2016).
■ PC games are a good example of core value games
PC games may have a smaller user base, but the popularity comes from allowing users to
share the game’s core value experience with virtual (online) friends. Compared with
mobile games, PC games have smaller, but far more loyal, users bases: PC games lose
users at a much slower rate and are thus more likely to be stable earnings generators.
Peripheral value
Value associated with the content
Core value
Value of the content itself
PC online
Console
Game
Real Friends Virtual Friends
Communication
# o
f p
laye
rs
Large
Small
Peripheral
Core
Mobile game:
Puzzle and Dragons
Monster Strike
White Cat Project
Fire Emblem Heroes
21 April 2017
Nintendo (7974) 40
Figure 100: Pokémon Go rankings Figure 101: PC games are stable earnings
generators
Note: Red line = US rankings, blue line = Japan rankings Source: AppAnnie
Source: Famitsu Game Hakusho 2016
Market value determines peripheral value; core value is what remains
The value placed on content is determined by its peripheral value and core value, but
intuitively we can see that there is obviously an upper limit on peripheral value. For
example, unlimited spending on advertising would not lead to an unlimited increase in a
game’s peripheral value.
Perhaps the easiest way to visualize this is to think about measuring peripheral value first
by looking at market value (i.e., sales). We can then estimate the proportion of market
value accounted for by peripheral value. If we subtract peripheral value from market value,
what is left is core value.
For example, assume we have two games with the same level of sales. However, Game A
has been the subject of intense advertising, while Game B has had almost no advertising
support. If we assume everything else is equal to keep things simple, we can see that in
terms of market value, Game A = Game B, while for peripheral value Game A > Game B
and for core value, Game A < Game B.
Figure 102: Core value defined as difference between market value and
peripheral value
Source: Credit Suisse estimate
0
200
400
600
800
1,000
1,200
1,400
1,600
(JP
Y b
n)
Mobile
Console
PC
Market value ー Peripheral value = Core value
21 April 2017
Nintendo (7974) 41
Monetizing older titles a possibility, but hurdles remain
Is ¥850-plus a reasonable price for a Famicom-era
game?
Nintendo’s Classic Mini launched last year sold every well (although the company has at
least temporarily halted production). Nintendo’s software attach rate of roughly 7x implies
that a user buying the package of 30 titles would play only seven titles. Assuming that the
consumer pays the fixed price of ¥5,980 for the 30-title set but only uses just seven of the
games, the price for each one would amount to ¥850. Even if the user were to play all 30
games, each title would effectively cost ¥200, which we would regard as the price floor for
these retro titles.
Figure 103: Value of older games around ¥200–850 per game
Source: Company data, Credit Suisse estimate
The high resale price quoted for the Classic Mini on some online shops is striking. We
note transactions at a resale price as high as ¥10,000, roughly twice the list price. This
suggests consumers probably regard the ¥5,980 list price as a bargain.
Figure 104: Nintendo Classic Mini’s
first week sales surpass 3DS Figure 105: 30 titles for ¥5,980
Note: Nintendo Classic Mini sales totaled roughly 260,000 units over four days in the first week; 3DS sales were roughly 230,000 over two days in the first week (Japan) Source: (C)Nintendo, Famitsu
Source: Nintendo JP
¥199
¥854
¥0
¥100
¥200
¥300
¥400
¥500
¥600
¥700
¥800
¥900
Attach rate = 30x Attach rate = 7x
Estimated value of older titile
21 April 2017
Nintendo (7974) 42
Ability to download older titles an advantage, but
significant growth unlikely given main age group
Offering the ability to download content is obviously advantageous for older content, since
there is no need to take up physical shelf space. Nintendo is seeing steady growth in
download sales, but download sales are still relatively low compared with sector peers'.
We believe this partially reflects the core age group of Nintendo gamers: a look at user
age group by IP shows that teenagers account for a larger proportion of gamers enjoying
Nintendo IP compared with other companies’ IP. Download sales are a bigger draw for
users old enough to use credit cards; we see little reason for a minor to go out, purchase a
pre-paid card at a retail outlet, then go back home to download the game.
Figure 106: User age by IP: teenage or younger account for 50% of Nintendo users, excluding certain titles
Note: Box highlights Nintendo IP; (*) denotes native application title Source: Credit Suisse, Famitsu Game Hakusho 2016
Figure 107: Games software: Trends
for package and digital versions
Figure 108: Games software: Sales
trend for digital versions
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
0% 20% 40% 60% 80% 100%
Animal Crossing
SUPER MARIO MAKER
Pocket Monsters
Splatoon
The Legend of Zelda: Majora's Mask 3D
Fire Emblem Fates
Yo-kai Watch Busters
Yokai-Watch
LINE Disney TSUM TSUM*
Monster Strike*
PUZZLE & DRAGONS*
Dragon Quest Heroes
Dragon Quest VIII
Colopl RUNE STORY*
Monster Hunter X
METAL GEAR SOLID V
5-9 10-19 20-29 30-39 40-49 50-59
0%
5%
10%
15%
20%
25%
30%
0
50,000
100,000
150,000
200,000
250,000
300,000
FY3/13 FY3/14 FY3/15 FY3/16
(JP
Y m
n)
SW Sales (package)
SW Sales (Digital)
% of digital
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
FY3/13 FY3/14 FY3/15 FY3/16 FY3/17
(JPY
mn)
4Q
3Q
2Q
1Q
21 April 2017
Nintendo (7974) 43
Figure 109: Downloads could increase depending on external conditions, but
storage capacity suggests Switch adoption is unlikely to trigger a trend change
Source: (C)Nintendo, Credit Suisse
21 April 2017
Nintendo (7974) 44
Financial information
Shareholder returns
Dividend policy
Nintendo’s dividend policy is to pay the higher of either 33% of consolidated OP or 50% of
consolidated NP. This generally means a payout ratio of over 50% (except for loss-making
periods). Technically, the company’s dividend policy suggests a dividend of zero for
periods of operating losses although when it posted operating losses in FY3/12–14,
Nintendo deviated from policy and set the annual dividend at ¥100.
Cash position seems reasonable
Nintendo has accumulated ample cash on hand because the nature of its
gaming/entertainment operations makes it vulnerable to sharp earnings fluctuations. We
think the company’s cash position is reasonable, considering the long-term sustainability
of its business and the lengthy preparation periods for each rollout.
Figure 110: No share buybacks lately, but shareholder returns high
Source: Company data, Credit Suisse
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
FY3
/90
FY3
/91
FY3
/92
FY3
/93
FY3
/94
FY3
/95
FY3
/96
FY3
/97
FY3
/98
FY3
/99
FY3
/00
FY3
/01
FY3
/02
FY3
/03
FY3
/04
FY3
/05
FY3
/06
FY3
/07
FY3
/08
FY3
/09
FY3
/10
FY3
/11
FY3
/12
FY3
/13
FY3
/14
FY3
/15
FY3
/16
FY3
/17
E
FY3
/18
E
FY3
/19
E
FY3
/20
E
FY3
/21
E
(JP
Y b
n)
Cash balance
Sales
21 April 2017
Nintendo (7974) 45
Forex impact
A high overseas component in its business exposes Nintendo to a sizable forex impact.
The high foreign sales ratio makes the impact from forex particularly severe on the
company’s sales and its foreign currency-denominated procurements. Nintendo’s costs
are mainly dollar and yen-based, while sales are mainly distributed among the US dollar,
euro, and yen.
As Nintendo makes its forex translation adjustment for sales on a quarterly basis using
YTD totals, forex impact tends to be stronger the farther it goes into the second half of the
fiscal year.
Using FY3/16 earnings, we estimate a total impact of ¥2.7bn in sales and ¥1.5bn in OP for
each ¥1 swing versus the dollar and the euro.
Figure 111: FY3/16 sales, by currency
Figure 112: FY3/16 procurements, by
currency
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 113: FY3/16 assets, by currency
Source: Company data, Credit Suisse estimates
USD47%
JPY53%
USD20%
EUR8%
JPY72%
21 April 2017
Nintendo (7974) 46
Equity method affiliates
The Pokémon Company and Nintendo
Pocket Monster (or “Pokémon”) is widely viewed as Nintendo’s IP, but in fact, the IP
belongs to The Pokémon Company. Nintendo holds a stake of around 32% in The
Pokémon Company, which qualifies The Pokémon Company as an equity-method
subsidiary. However, funds flow from corporate to equity affiliate as Nintendo, which
handles distribution of game software and toys, pays a license fee to The Pokémon
Company under a second-party license arrangement.
Figure 114: Nintendo’s stake in The
Pokémon Company totals 32%
Figure 115: Pokémon Go is a co-
production between Niantic and The
Pokémon Company; impact on
Nintendo limited to equity-method
profits
Source: Company data, Credit Suisse Note: Although Pokémon Go is a smart device game, DeNA is not involved since it is a product of The Pokémon Company Source: ©2017 Niantic, Inc. ©2017 Pokémon. ©1995-2017 Nintendo/Creatures Inc. /GAME FREAK inc.
The Pokémon Company(formerly Pokémon Center Co., Ltd.)
Nintendo Creatures Game Freak
32%
21 April 2017
Nintendo (7974) 47
Valuation: Valuations not excessive, but V-shaped recovery already priced in
Assessing current valuations using an SOTP model
(1) Using DCF to value smart device game app business
We believe the smart device app business should be valued using a DCF model. Unlike
Nintendo’s traditional game console business, the smart device app business should be a
growth business and steady cash generator.
Our DCF model’s key inputs include an equity risk premium of 6.65% and a risk-free rate
of 0.1%. We assume a debt/equity ratio of zero, beta of 1.23 (five-year adjusted average)
and WACC of 8.08%. Our model includes forecasts through FY3/21, for FY3/22 onwards
we derive a terminal value from a forward EV/EBITDA of 16x, referencing our FY3/21
smart device app business EBITDA estimate and the EV/EBITDA average for the three
major global mobile game companies (Nintendo, Tencent, NetEase). Based on the above,
we arrive at a valuation of ¥1.516tn for the smart device game app business.
Figure 116: Smart device game app business valuation estimate of ¥1,516bn
Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimate
DCF Analysis 0.30
(JPY mn)
Assumptions FCF estimates
# of shares 120,129,323 3/17E 3/18E 3/19E 3/20E 3/21E
Net debt (16/3A) (570,448) OP (Smart device business) 3,566 26,449 66,449 106,449 126,449
Exit EV/EBITDA Multiple 16.0x Tax rate 35% 35% 35% 35% 35%
EBIAT 2,318 17,192 43,192 69,192 82,192
WACC Calculation Depreciation & Amortization - - - - -
Risk free rate 0.10% Other non-cash cost - - - - -
Beta (5year, adjusted) 1.23 EBITDA 3,566 26,449 66,449 106,449 126,449
Mkt. Risk Premium 6.65% Net working capital - - - - -
Cost of Equity 8.28% CAPEX - - - - -
Interest rate 1.00% FCF 2,318 17,192 43,192 69,192 82,192
After-tax cost of debt 0.65% Year 1.00 2.00 3.00 4.00 5.00
D/E ratio 0.0x Discount rate 0.92 0.85 0.79 0.73 0.67
WACC 8.28% Present Value 2,141 14,663 34,022 50,335 55,220
(a) Present Value Current - 3/21E 156,380
(b) Terminal Value 1,359,260
(c) Enterprise Value (a) + (b) 1,515,640
(d) Net Debt (3/16A Smart device only) -
(e) Market Value (Smart device only) (c) - (d) 1,515,640
(1) Smart device app business valuation:
¥1.516tn
21 April 2017
Nintendo (7974) 48
Figure 117: Average EV/EBITDAs since Nintendo announced move into mobile gaming in 2015: EV/EBITDA
of 16x warranted for smart device game app business
Source: Thomson Reuters Datastream, Credit Suisse
Figure 118: Nintendo trading near high end of range for major global mobile game companies
Source: Thomson Reuters Datastream, Credit Suisse
Nintendo’s multiples are well above its domestic counterparts, including, for example, the
major packaged software game developers (Bandai Namco, Konami, Square Enix, and
Capcom) or mobile game developers (six companies including Colopl (3668), GungHo
Online, and Mixi). This is likely because of Nintendo’s IP assets and globally competitive
business scale.
19.1 x17.5 x
10.3 x 11.2 x 11.1 x 10.6 x
6.1 x4.3 x
6.5 x4.0 x
5.5 x
0 x
5 x
10 x
15 x
20 x
25 x
Mobilegame(Global)
15.6x
Game software(Global)
11.1x
Game platform8.3x
Game software (Domestic)
5.1x
14.2 x13.0 x
15.9 x
6.3 x
9.9 x10.6 x
17.7 x
0 x
5 x
10 x
15 x
20 x
25 x
30 x
35 x
Feb
-12
May
-12
Au
g-1
2
No
v-1
2
Feb
-13
May
-13
Au
g-1
3
No
v-1
3
Feb
-14
May
-14
Au
g-1
4
No
v-1
4
Feb
-15
May
-15
Au
g-1
5
No
v-1
5
Feb
-16
May
-16
Au
g-1
6
No
v-1
6
Feb
-17
EV/E
BIT
DA
Activision Blizzard ELECTRONIC ARTS TENCENT HOLDINGS
APPLE ALPHABET 'A' NETEASE
Nintendo
No other domestic firm on comparable level
21 April 2017
Nintendo (7974) 49
Figure 119: Trading at high
EV/EBITDA multiple since smart
device app announcement
Figure 120: Mobile game makers
trading at EV/EBITDA of around 5x;
Nintendo trading significantly higher
Source: Thomson Reuters Datastream, Credit Suisse Source: Thomson Reuters Datastream, Credit Suisse
Figure 121: P/E comparison for
domestic game sector
Figure 122: P/E comparison for
overseas game sector
Source: Thomson Reuters Datastream, Credit Suisse Source: Thomson Reuters Datastream, Credit Suisse
Figure 123: Smart device app
business to be a cash flow generator;
DCF model warranted given stable
earnings outlook
Figure 124: EV/EBITDA trends for
three domestic mobile game makers,
that have peaked out represent
potential level in bear case scenario
Source: Company data, Credit Suisse estimates Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
17.7 x
4.8 x6.6 x
3.9 x4.7 x
0 x
5 x
10 x
15 x
20 x
25 x
30 x
35 x
Feb
-12
Au
g-1
2
Feb
-13
Au
g-1
3
Feb
-14
Au
g-1
4
Feb
-15
Au
g-1
5
Feb
-16
Au
g-1
6
Feb
-17
EV
/EB
ITD
A
Nintendo
BanNam
KONAMI
SQEX
Capcom
Mar 2015 -Announced
collaboration with DeNA
1 x
2 x
3 x
4 x
5 x
6 x
7 x
8 x
9 x
10 x
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
EV/E
BIT
DA
Colopl GungHo mixi
GREE DeNA Nexon
0 x
20 x
40 x
60 x
80 x
100 x
120 x
Ap
r-1
0
Sep
-10
Feb
-11
Jul-
11
Dec
-11
May
-12
Oct
-12
Mar
-13
Au
g-1
3
Jan
-14
Jun
-14
No
v-1
4
Ap
r-1
5
Sep
-15
Feb
-16
Jul-
16
Dec
-16
NINTENDO
BANDAI NAMCO HDG.
KONAMI HOLDINGS
SQUARE ENIX HOLDINGS
CAPCOM
0 x
20 x
40 x
60 x
80 x
100 x
120 x
Ap
r-1
0
Oct
-10
Ap
r-1
1
Oct
-11
Ap
r-1
2
Oct
-12
Ap
r-1
3
Oct
-13
Ap
r-1
4
Oct
-14
Ap
r-1
5
Oct
-15
Ap
r-1
6
Oct
-16
Ap
r-1
7
NINTENDO
ACTIVISION BLIZZARD
ELECTRONIC ARTS
TENCENT HOLDINGS
APPLE
ALPHABET 'A'
0
50
100
150
200
250
(JP
Y b
n)
Smart device Sales
Smart device OP
6.7 2.3
11.8
0 x5 x
10 x15 x20 x25 x30 x35 x40 x45 x50 x
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
Mar
-16
Sep
-16
EV/E
BIT
DA
GunHo
mixi
Colopl
21 April 2017
Nintendo (7974) 50
(2) Using ex-cash P/E to value game console business
Prior to Nintendo’s move into smart device game apps, Nintendo’s ex-cash P/E (P/E
based on market cap less cash on hand, divided by EPS) was consistently in the 10–20x
range prior to the loss-making years from FY3/12. On the other hand, P/E without
excluding cash was extremely volatile. We believe ex-cash P/E is a viable metric to use in
valuing the game console business.
Our OP forecast for FY3/19, when we expect Nintendo Switch to make the biggest
contribution to profit, is ¥196.7bn. Of this, we expect the smart device game app business
to contribute ¥66.4bn. Applying a tax rate of 35% to the remaining ¥130.3bn results in NP
of ¥86.1bn attributable to the game console business. We think Nintendo will be able to
establish a competitive mid-range position with Nintendo Switch, a hybrid console that can
act as both a dedicated game console and a portable handheld gaming device. We thus
believe a P/E of 18x is warranted. Based on this, we arrive at a valuation of ¥1.5240tn
for the game console business.
Figure 125: Ex-cash P/E of 10–20x
prior to loss-making period
Figure 126: P/E including cash highly
volatile
Source: Company data, the BLOOMBERG PROFESSIONAL™ service
Source: Company data, the BLOOMBERG PROFESSIONAL™ service
(3) Cash on hand based on end-FY3/16 level
Nintendo had a cash balance of around ¥570bn as of end-FY3/16. We believe we need to
add this back in to our model since we used ex-cash P/E when valuing the game console
business. This results in cash per share of roughly ¥4,750.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0x
10x
20x
30x
40x
50x
60x
70x
FY2001
FY2003
FY2005
FY2007
FY2009
FY2011
FY2013
FY2015
(JP
Y b
n)
Ex-cash PER
Sales
20x
10x
38.2 x
0 x
20 x
40 x
60 x
80 x
100 x
120 x
Mar
-07
Feb
-08
Jan
-09
De
c-0
9
No
v-1
0
Oct
-11
Sep
-12
Au
g-1
3
Jul-
14
Jun
-15
May
-16
PER
Nintendo
(2) Game console business valuation:
¥1.5240tn
(3) Adding back in end-FY3/16 cash of ¥570bn
21 April 2017
Nintendo (7974) 51
Figure 127: Adding back in end-FY3/16 cash balance of ¥570.4bn
Source: Company data, Credit Suisse estimates
If we sum (1)–(3) from above, we arrive at a valuation of ¥3.610tn for Nintendo, or ¥30,051
per share. We thus set our initial TP at ¥30,000.
Figure 128: SOTP-based TP calculation
Source: Company data, Credit Suisse estimates
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
FY3
/90
FY3
/91
FY3
/92
FY3
/93
FY3
/94
FY3
/95
FY3
/96
FY3
/97
FY3
/98
FY3
/99
FY3
/00
FY3
/01
FY3
/02
FY3
/03
FY3
/04
FY3
/05
FY3
/06
FY3
/07
FY3
/08
FY3
/09
FY3
/10
FY3
/11
FY3
/12
FY3
/13
FY3
/14
FY3
/15
FY3
/16
FY3
/17
E
FY3
/18
E
FY3
/19
E
FY3
/20
E
FY3
/21
E
(JP
Y b
n)
Cash balance
Sales
¥570,448 ¥4,749
¥1,523,951 ¥12,686
¥1,515,640 ¥12,617
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Business and cash value Share price breakdown
1) Smart device
2) Game console
3) Cash balance
Divide by total number of
sharesto calculate per-share
Cash balance at end-FY3/16: ¥570bn
Estimated fair value: ¥3.6100tn
Fair value share price: ¥30,051
mn
mn
Ex-cash P/E of 18x applied to FY3/19
operating profit forecast - contribution of smart
devices (¥130.3bn)
Calculated using five-year DCF model.
EV/EBITDA of 16x used for terminal valuemn
Adding (1), (2) and (3) to arrive at TP of
¥30,000
21 April 2017
Nintendo (7974) 52
Comparing our SOTP-based TP of ¥30,000 with consolidated DCF modeling
Our TP of ¥30,000 equates to a terminal value derived from an EV/EBITDA of 16.5x based
on a consolidated DCF model. Nintendo has traded at an average EV/EBITDA of 16.5x
since 2015, so our TP does not appear to be pricing in any excessive premium.
Figure 129: TP calculation based on a consolidated DCF model
Source: Company data, Credit Suisse estimates
Our ¥30,000 TP equates to a consolidated EV/EBITDA of 16.5x and FY3/18 and FY3/19
P/Es of 51x and 25x (average of 38x). This compares to current consensus forecast-based
multiples of 17.7x and 38.2x for the two years, suggesting that our TP does not reflect an
excessive premium.
Nintendo’s share price performance last year was heavily influenced by news flow,
specifically the successive positive stories on topics such as Pokemon Go, Super Mario
Run and Nintendo Switch. Historically speaking, Nintendo’s shares are trading at relatively
high multiples, so intuitively it may feel like Nintendo’s share price is somewhat stretched.
We note, however, that our SOTP model uses multiples based on historical averages for
each business, further evidence to us that our TP has not baked in any excessive
premium.
DCF Analysis 1.75
(JPY mn)
Assumptions FCF estimates
# of shares 120,129,323 3/17E 3/18E 3/19E 3/20E 3/21E
Net debt (16/3A) (570,448) OP 20,997 91,299 196,701 235,971 226,714
Exit EV/EBITDA Multiple 16.5x Tax rate 35% 35% 35% 35% 35%
EBIAT 13,648 59,344 127,855 153,381 147,364
WACC Calculation Depreciation & Amortization 9,100 9,100 9,100 9,100 9,100
Risk free rate 0.10% Other non-cash cost - - - - -
Beta 1.23 EBITDA 30,097 100,399 205,801 245,071 235,814
Mkt. Risk Premium 6.65% Net working capital 6,283 (45,888) (23,022) 662 4,360
Cost of Equity 8.28% CAPEX 10,400 10,400 10,400 10,400 10,400
Interest rate 1.00% FCF 39,431 32,956 124,334 173,543 171,224
After-tax cost of debt 0.65% Year 1.00 2.00 3.00 4.00 5.00
D/E ratio 0.0x Discount rate 0.92 0.85 0.79 0.73 0.67
WACC 8.28% Present Value 36,416 28,109 97,938 126,247 115,036
(a) Present Value Current - 3/21E 403,746
(b) Exit Terminal Value 2,614,101
(c) Enterprise Value (a) + (b) 3,017,847
(d) Net Debt (3/16A) (570,448)
(e) Market Value (c) - (d) 3,588,295
(f) Estimated Fair Value (JPY) (e) / # of shares 29,870
Current TP multiple not based on demanding
multiple
21 April 2017
Nintendo (7974) 53
Figure 130: Average EV/EBITDA since
2014 up sharply, now near 20x
Figure 131: P/E also up sharply,
reaching 100x at one point
Source: Thomson Reuters Datastream, Credit Suisse Source: Thomson Reuters Datastream, Credit Suisse
P/B not a viable valuation metric under current conditions
Nintendo’s P/B tends to move closely in line with company profit levels. This is likely
because Nintendo’s total net assets remain at around the same level each year. Both our
model and consensus forecasts call for sustained sales and profit growth going forward,
so we do not think P/B would be a viable valuation metric given the expected change in
profit level.
Figure 132: Net asset level largely
unchanged; entering period of sales,
profit growth, which rules out P/B Figure 133: Nintendo P/B
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
TP assumptions based on three scenarios for Switch install base growth
■ Bull case assumption: Switch install base grows at same pace as the Wii (roughly
80mn units sold by end-FY3/21)
■ Bear case assumption: Switch install base grows at same pace as the Wii U (roughly
13mn units sold by end-FY3/21)
We estimate Nintendo Switch sales under the Bull and Bear scenarios above, then
calculate TPs using the SOTP model outlined previously. We will be keeping a close eye
on initial Switch sales in FY3/17 and sales projections for FY3/18.
17.7 x
0 x
5 x
10 x
15 x
20 x
25 x
30 x
35 x
Feb
-08
Dec
-08
Oct
-09
Au
g-10
Jun
-11
Ap
r-12
Feb
-13
Dec
-13
Oct
-14
Au
g-15
Jun
-16
Apr
-17
EV/E
BIT
DA
Nintendo
20x
7x38.2 x
0 x
20 x
40 x
60 x
80 x
100 x
120 x
Mar
-07
Feb
-08
Jan-
09
Dec
-09
No
v-10
Oct
-11
Sep
-12
Aug
-13
Jul-
14
Jun
-15
May
-16
PER
Nintendo
0 x
1 x
2 x
3 x
4 x
5 x
6 x
7 x
8 x
Apr
-07
Apr
-08
Apr
-09
Apr
-10
Apr
-11
Apr
-12
Apr
-13
Apr
-14
Apr
-15
Apr
-16
PBR
P/B not a good option during period of
sustained profit growth
21 April 2017
Nintendo (7974) 54
Figure 134: TP based on Bull and Bear scenarios for Switch sales
Source: Thomson Reuters Datastream, Credit Suisse estimate
Risks
Upside risks
■ Better-than-expected Nintendo Switch sales or software attach rate
■ Smart device apps business doing better than expected or sharp growth in game app
pipeline
■ Launch of new hardware (many market participants seem to expect Nintendo to
release new hardware such as a Nintendo Switch Mini or a new handheld)
■ Rapid yen depreciation
Downside risks
■ Worse-than-expected Nintendo Switch sales or software attach rate
■ A price cut for the Switch or bundling the Switch with a ‘killer content’ game (games
bundled with hardware are included in unit sales figures but are not recognized as
revenue, so bundling a game with a console is essentially a price cut)
■ Sluggish smart device game app sales or development delays
■ Rapid yen appreciation
¥41,000
¥30,000
¥20,000
¥0
¥10,000
¥20,000
¥30,000
¥40,000
¥50,000
2016 2017 2018
NINTENDOBull caseBase case
Bear case
21 April 2017
Nintendo (7974) 55
HOLT Nintendo’s CFROI
® averaged 11% in the past two decades, but has undulated along with
its product cycle, peaking at 22% in FY3/09, at the height of the Wii console and troughing
at –2.5% in FY3/11, before the launch of the 3DS handheld machine, and then settling at
close to 0% through FY3/16. The swing factor for CFROI (including cash in the
denominator) has been margins and asset turns, both of which have been a function of
changes in revenue with the additional headwind of cash-build driving asset turns to at
least a 20-year low of 0.34x in FY3/16.
Looking forward, our forecasts point to a recovery in CFROI to about 10% by FY3/20
driven by EBITDA margin improvement to 22.5% and top-line growth that is able to
overcome continued balance sheet growth and reach 0.7x. Thereafter, CFROI is forecast
to fall to about 8% on flat margins and low top-line growth of 3% over the medium-term
and assuming no change in capital policy. Maintaining CFROI at this 8% level requires a
more stable and even product cycle than historically evident, something that could be
achieved with contribution from the Smart Device business (games for smartphone).
Figure 135: HOLT CFROI Figure 136: Sales growth
Source: Company data, Credit Suisse estimates, HOLT® Source: Company data, Credit Suisse estimates, HOLT®
Figure 137: EBITDA margins Figure 138: Asset turns
Source: Company data, Credit Suisse estimates, HOLT® Source: Company data, Credit Suisse estimates, HOLT®
-5
0
5
10
15
20
25
1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
CFROI Forecast CFROI Discount Rate
-40
-20
0
20
40
60
80
100
1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
-10
-5
0
5
10
15
20
25
30
35
1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
21 April 2017
Nintendo (7974) 56
HOLT valuation derived from the above-described scenario, inclusive of the “penalty” for
holding cash, suggests about 30% downside. A similar scenario removing this cash drag
that accounts for about two-thirds of HOLT gross investment (the HOLT calculated
balance sheet), suggests that the shares are closer to fair value as shown at the center of
the matrix below which shows upside/downside from the current share price based on
changes in long-run assumptions.
What this matrix highlights is that in addition to the treatment of cash, to be more
constructive on the stock within the HOLT valuation framework, would require either higher
margins, higher top-line growth, or the combination thereof. For example, there is 26%
upside to the shares if the company can sustain top-line growth of 5% with an EBITDA
margin of 24.5%.
Figure 139: HOLT Ex-Cash Valuation Scenario – Sensitivity Analysis
Source: Company data, Credit Suisse estimates, HOLT®
Sales Growth
JPY -1.0% 1.0% 3.0% 5.0% 7.0%
18.5%
20.5%
26.5% -10% 3% 18% 37% 61%
23%
48%
22.5% -23% -13% 0% 16% 36%
24.5% -16% -5% 9% 26%
EB
ITD
A M
arg
in
-36% -28% -18% -5% 11%
-29% -20% -9% 5%
21 April 2017
Nintendo (7974) 57
Earnings forecasts 4Q (Jan–Mar) FY3/17 forecasts
OP: We forecast an operating loss of ¥5.3bn (guidance: operating loss ¥6.3bn, consensus
OP of ¥0.6bn)
Regarding Nintendo Switch numbers, we understand that sales have been quite brisk, but
given that the new console was only launched in March, we assume sales will come in
only slightly ahead of the company target (roughly 2.0mn).
Nintendo Switch: 4Q sales 2.2mn units, with retail price ¥29,800 and CoGS ¥23,000
Game assumptions: In its first fiscal year, the Switch only contributed in March, and its
lineup so far is limited, so we assume a 1.5x attach rate for the device.
Full-FY3/17 forecasts
OP: ¥21.0bn (guidance ¥20.0bn, consensus ¥25.4bn)
Our forecast vs guidance: Nintendo released revised guidance when it announced
guidance at 3Q results, and we do not expect any major surprises to full-term earnings
when the company announces 4Q results.
Forex assumptions: ¥110/$, ¥120/€ (same as guidance). Regarding forex sensitivity, we
assume a ¥600mn and ¥800mn impact on annual OP from each one-yen move versus the
dollar and euro, respectively.
Nintendo Switch assumptions: Same as our stand-alone 4Q forecast of 2.2mn units,
since the console was launched in March.
FY3/18 forecasts
OP: ¥91.3bn (consensus ¥99.8bn)
Smart device app sales: ¥70bn (annual)
Nintendo Switch sales: sales of 12mn units (annual), software attach rate of 6x
FY3/19 forecasts
OP: ¥196.7bn (consensus ¥166.0bn)
Smart device app sales: ¥150bn (annual)
Nintendo Switch sales: 14.67mn units (annual), software attach rate of 6x
21 April 2017
Nintendo (7974) 58
Figure 140: Income statement
Source: Company data, Credit Suisse estimates
(Y million) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E FY16CoE
Sales 1,838,622 1,434,365 1,014,345 647,652 635,422 571,726 549,780 504,459 416,045 888,942 1,140,811 1,137,636 1,088,288 470,000
YoY% NA -22% -29% -36% -2% -10% -4% -8% -18% 114% 28% 0% -4% -7%
Cost of sales 1,044,981 859,131 626,379 493,997 495,068 408,506 335,196 283,494 250,721 502,677 589,165 576,041 567,467 NA
COGS 56.8% 59.9% 61.8% 76.3% 77.9% 71.5% 61.0% 56.2% 60.3% 56.5% 51.6% 50.6% 52.1% NA
Gross profit 793,641 575,234 387,966 153,655 140,354 163,220 214,584 220,965 165,325 386,265 551,646 561,595 520,821 NA
SG&A costs 238,378 218,667 216,890 190,975 176,764 209,645 189,814 188,084 144,328 294,966 354,945 325,624 294,107 NA
SG&A / sales 13.0% 15.2% 21.4% 29.5% 27.8% 36.7% 34.5% 37.3% 34.7% 33.2% 31.1% 28.6% 27.0% NA
Operating Profit 555,263 356,567 171,076 -37,320 -36,410 -46,425 24,770 32,881 20,997 91,299 196,701 235,971 226,714 20,000
YoY% NA -36% -52% NA NA NA NA 33% -36% 335% 115% 20% -4% -39%
OP margin% 30.2% 24.9% 16.9% -5.8% -5.7% -8.1% 4.5% 6.5% 5.0% 10.3% 17.2% 20.7% 20.8% 4.3%
Non-operating profit / loss -106,568 7,757 -42,975 -23,543 46,893 52,512 45,760 -4,091 2,344 14,400 14,400 14,400 14,400 10,000
Non-operating profit 32,159 11,082 8,602 9,825 48,485 53,136 46,043 14,550 14,700 14,700 14,700 14,700 14,700 NA
Non-operating loss 138,727 3,325 51,577 33,368 1,592 624 283 18,641 12,356 300 300 300 300 NA
Recurring Profit 448,695 364,324 128,101 -60,863 10,482 6,086 70,530 28,790 23,341 105,699 211,101 250,371 241,114 30,000
YoY% NA -19% -65% NA NA -42% 1059% -59% -19% 353% 100% 19% -4% 4%
RP margin% 24.4% 25.4% 12.6% -9.4% 1.6% 1.1% 12.8% 5.7% 5.6% 11.9% 18.5% 22.0% 22.2% 6.4%
Extraordinary profit -563 3,117 -167 -14 -286 4,843 1,561 -1,075 62,510 0 0 0 0 NA
Pretax profit 448,132 367,442 127,934 -60,877 10,197 10,929 72,091 27,715 85,852 105,699 211,101 250,371 241,114 NA
YoY% NA -18% -65% NA NA 7% 560% -62% 210% 23% 100% 19% -4% NA
Pretax profit margin% 24.4% 25.6% 12.6% -9.4% 1.6% 1.9% 13.1% 5.5% 20.6% 11.9% 18.5% 22.0% 22.2% -
Taxes 169,134 138,895 50,261 -17,659 3,029 34,131 30,228 11,196 305 35,938 69,663 82,622 79,568 NA
Effective tax rate 37.7% 37.8% 39.3% 29.0% 29.7% 312.3% 41.9% 40.4% 0.4% 34.0% 33.0% 33.0% 33.0% -
Net Profit 279,089 228,635 77,621 -43,204 7,099 -23,222 41,843 16,506 85,532 69,748 141,425 167,735 161,533 90,000
YoY% NA -18% -66% NA NA NA NA -61% 418% -18% 103% 19% -4% 445%
NP margin% 15.2% 15.9% 7.7% -6.7% 1.1% -4.1% 7.6% 3.3% 20.6% 7.8% 12.4% 14.7% 14.8% 19.1%
Shares outstanding ('000) 127,885 127,882 127,879 127,878 127,877 118,374 118,372 120,129 120,129 120,129 120,129 120,129 120,129 120,129
EPS (¥) ¥2,182 ¥1,788 ¥607 -¥338 ¥56 -¥196 ¥353 ¥137 ¥712 ¥581 ¥1,177 ¥1,396 ¥1,345 ¥749
BPS (¥) ¥10,152 ¥10,889 ¥10,696 ¥10,048 ¥10,003 ¥9,537 ¥9,804 ¥9,774 ¥10,130 ¥10,420 ¥11,009 ¥11,707 ¥12,379 NA
DPS (¥) ¥1,440 ¥930 ¥450 ¥100 ¥100 ¥100 ¥180 ¥150 ¥356 ¥290 ¥589 ¥698 ¥672 ¥380
21 April 2017
Nintendo (7974) 59
Figure 141: Earnings by segment
Source: Company data, Credit Suisse estimates
Figure 142: Cash flow statement
Source: Company data, Credit Suisse estimates
(Y million, %) FY3/05 FY3/06 FY3/07 FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15 FY3/16 FY3/17E FY3/18E FY3/19E FY3/20E FY3/17E
CoE
FX rate
USD 108 113 117 114 101 93 86 79 83 100 110 120 110 110 110 110
EUR 135 138 150 162 143 131 113 109 107 134 139 133 120 120 120 120
Sales (Y mn) 515,292 509,249 966,534 1,672,423 1,838,622 1,434,365 1,014,345 647,652 635,422 571,726 549,780 504,459 416,045 888,942 1,140,811 1,137,636 470,000
YoY% 0% -1% 90% 73% 10% -22% -29% -36% -2% -10% -4% -8% -18% 114% 28% 0% 13%
Hardware 290,376 281,484 584,800 1,076,713 1,159,748 863,866 610,401 387,508 396,347 316,026 293,370 267,630 209,862 456,442 185,998 185,998
YoY% 0% -3% 108% 84% 8% -26% -29% -37% 2% -20% -7% -9% -22% 117% -59% 0%
Handheld 206,697 223,869 374,063 467,226 426,151 380,879 298,653 234,604 227,224 201,767 149,616 113,239 98,378 109,916 124,702 143,489
Console 41,989 24,668 156,478 499,346 617,326 378,462 242,851 116,022 136,852 89,569 105,548 102,404 52,448 286,080 349,614 178,800
Other (Incl. amiibo) 41,690 32,947 54,259 110,141 116,271 104,525 68,897 36,882 32,271 24,690 38,204 51,986 59,036 60,446 61,296 61,756
Software 222,704 225,588 379,578 592,079 675,596 567,724 402,229 258,592 237,539 253,826 255,273 229,517 188,600 360,200 452,400 419,300
YoY% 0% 1% 68% 56% 14% -16% -29% -36% -8% 7% 1% -10% -18% 91% 26% -7%
Smart device 5,734 15,683 70,000 150,000 230,000
YoY% - 174% 346% 114% 53%
Other 2,212 2,177 2,156 3,631 3,278 2,775 1,715 1,552 1,536 1,874 1,137 1,577 1,900 2,300 2,800 3,400
YoY% -12% -2% -1% 68% -10% -15% -38% -10% -1% 22% -39% 39% 20% 21% 22% 21%
CoGS (Y mn) 298,115 294,133 568,722 972,362 1,044,981 859,131 626,379 493,997 495,068 408,506 335,196 283,494 250,721 502,677 589,165 576,041
Hardware 221,317 200,070 416,289 811,978 911,234 619,381 442,490 415,359 359,441 276,436 223,068 166,689 141,019 348,657 385,925 336,111
YoY% - -10% 108% 95% 12% -32% -29% -6% -13% -23% -19% -25% -15% 147% 11% -13%
Handheld 184,684 177,310 267,726 335,822 305,707 236,753 207,495 267,957 203,582 189,024 132,787 81,699 88,800 98,312 110,578 126,233
Console 36,632 22,760 148,563 476,155 605,526 382,628 234,995 147,402 155,859 87,412 90,281 79,760 50,600 248,400 273,209 207,639
Other (Incl. amiibo) 5,230 1,619 1,945 2,138 2,239
Software 76,798 94,063 152,433 160,384 133,747 239,750 183,889 78,638 135,627 132,070 112,128 113,938 101,860 119,020 128,240 124,930
YoY% - 22% 62% 5% -17% 79% -23% -57% 72% -3% -15% 2% -11% 17% 8% -3%
Smart device 2,867 7,842 35,000 75,000 115,000
YoY% 174% 346% 114% 53%
Gross Profit (Y mn) 217,176 215,115 397,812 700,060 793,641 575,234 387,965 153,654 140,354 163,219 214,584 220,965 165,325 386,265 551,646 561,595 NA
Hardware 27,369 48,467 114,252 154,594 132,243 139,960 99,014 -64,733 4,635 14,900 32,096 54,184 11,426 49,284 90,529 89,308
Handheld 22,013 46,559 106,337 131,404 120,444 144,126 91,158 -33,353 23,642 12,743 16,829 31,540 9,578 11,604 14,124 17,256
Console 5,357 1,908 7,915 23,191 11,800 -4,166 7,856 -31,380 -19,007 2,157 15,267 22,644 1,848 37,680 76,405 72,052
amiibo 0 6,720 17,540 5,431 6,515 7,172 7,531
Software 145,906 131,525 227,145 431,695 541,849 327,974 218,340 179,954 101,912 121,756 143,145 115,579 86,740 241,180 324,160 294,370
YoY% - -10% 73% 90% 26% -39% -33% -18% -43% 19% 18% -19% -25% 178% 34% -9%Smart device 2,867 7,842 35,000 75,000 115,000
YoY% - 174% 346% 114% 53%Other 1,756 1,643 1,772 3,168 3,278 2,775 1,715 1,552 1,536 1,874 1,137 1,577 1,900 2,300 2,800 3,400
YoY% - -6% 8% 79% 3% -15% -38% -10% -1% 22% -39% 39% 20% 21% 22% 21%
GPM% 42.1% 42.2% 41.2% 41.9% 43.2% 40.1% 38.2% 23.7% 22.1% 28.5% 39.0% 43.8% 39.7% 43.5% 48.4% 49.4% NA
Hardware 9.4% 17.2% 19.5% 14.4% 11.4% 16.2% 16.2% -16.7% 1.2% 4.7% 10.9% 20.2% 5.4% 10.8% 48.7% 48.0%
Handheld 11% 21% 28% 28% 28% 38% 31% -14% 10% 6% 11% 28% 10% 11% 11% 12%
Console 13% 8% 5% 5% 2% -1% 3% -27% -14% 2% 14% 22% 4% 13% 22% 40%
amiibo 18% 34% 9% 11% 12% 12%
Software 65.5% 58.3% 59.8% 72.9% 80.2% 57.8% 54.3% 69.6% 42.9% 48.0% 56.1% 50.4% 46.0% 67.0% 71.7% 70.2%
Smart device 50.0% 50.0% 50.0% 50.0% 50.0%
Other 79.4% 75.5% 82.2% 87.2% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating profit (Y mn) 111,522 90,349 226,024 487,220 555,263 356,567 171,076 -37,320 -36,410 -46,425 24,770 32,881 20,997 91,299 196,701 235,971 20,000
Hardware 9,522 12,450 64,572 127,708 98,153 112,790 37,394 -142,116 -73,351 -76,293 -30,985 1,157 -4,609 -51,970 -37,778 -20,903
Software 100,244 76,256 159,681 356,344 454,257 241,426 132,335 103,702 35,832 28,681 55,011 30,006 20,730 115,110 165,820 147,615
Smart device 762 3,566 26,449 66,449 106,449
Other 1,756 1,643 1,772 3,168 2,853 2,352 1,348 1,094 1,109 1,187 744 989 1,310 1,710 2,210 2,810
OPM% 21.6% 17.7% 23.4% 29.1% 30.2% 24.9% 16.9% -5.8% -5.7% -8.1% 4.5% 6.5% 5.0% 10.3% 17.2% 20.7% 4.3%
Hardware 3.3% 4.4% 11.0% 11.9% 8.5% 13.1% 6.1% -36.7% -18.5% -24.1% -10.6% 0.4% -2.2% -11.4% -20.3% -11.2%
Software 45.0% 33.8% 42.1% 60.2% 67.2% 42.5% 32.9% 40.1% 15.1% 11.3% 21.5% 13.1% 11.0% 32.0% 36.7% 35.2%
Smart device - - - - - - - - - - - 13.3% 22.7% 37.8% 44.3% 46.3%Other 79.4% 75.5% 82.2% 87.2% 87.0% 84.8% 78.6% 70.5% 72.2% 63.3% 65.5% 62.7% 68.9% 74.3% 78.9% 82.6%
Hardware units ('000) 24,580 22,150 34,470 50,670 57,550 47,640 36,210 28,470 23,730 16,310 12,580 10,150 10,400 18,600 20,365 16,732 8,000
Console total 3,930 2,360 6,570 18,770 25,950 20,530 15,080 9,840 7,430 3,940 3,840 3,360 3,000 12,000 14,665 11,732 800
Nintendo Switch - - - - - - - - - - - - 2,200 12,000 14,665 11,732 NA
WiiU - - - - - - - - 3,450 2,720 3,380 3,250 800 - - - 800
Wii 0 0 5,840 18,610 25,950 20,530 15,080 9,840 3,980 1,220 460 110 - - - - -
GC 3,930 2,360 730 160 - - - - - - - - - - - - -
Portable total 20,650 19,790 27,900 31,900 31,600 27,110 21,130 18,630 16,300 12,370 8,740 6,790 7,400 6,600 5,700 5,000 7,200
3DS - - - - - - 3,610 13,530 13,950 12,240 8,740 6,790 7,400 6,600 5,700 5,000 7,200
NDS 5,260 11,460 23,560 30,310 31,180 27,110 17,520 5,100 2,350 130 - - - - - - -
GBA 15,390 8,330 4,340 1,590 420 - - - - - - - - - - - -
Software units ('000) 143,480 142,100 207,720 318,220 402,520 343,400 301,670 199,190 147,020 123,200 98,870 83,210 71,200 111,600 122,190 100,392 69,000
Console total 48,420 32,790 45,640 122,200 204,580 191,810 171,260 102,370 64,030 45,020 36,130 34,690 16,200 72,000 87,990 70,392 14,000
Nintendo Switch - - - - - - - - - - - - 2,200 72,000 87,990 70,392 NA
WiiU - - - - - - - - 13,420 18,860 24,400 27,360 14,000 - - - 14,000
Wii - - 28,840 119,610 204,580 191,810 171,260 102,370 50,610 26,160 11,730 7,330 - - - - -
GC 48,420 32,790 16,800 2,590 - - - - - - - - - - - -
Portable total 95,060 109,310 162,080 196,020 197,940 151,590 130,410 96,820 82,990 78,180 62,740 48,520 55,000 39,600 34,200 30,000 55,000
3DS - - - - - - 9,430 36,000 49,610 67,890 62,740 48,520 55,000 39,600 34,200 30,000 55,000
NDS 10,490 49,950 123,550 185,620 197,310 151,590 120,980 60,820 33,380 10,290 - - - - - - -
GBA 84,570 59,360 38,530 10,400 630 - - - - - - - - - - - -
amiibo units ('000) - - - - - - - - - - 10,500 53,600 16,591 19,909 21,900 22,995 NA
Figurine - - - - - - - - - - 10,500 24,700 7,645 9,175 10,092 10,597 NA
Card - - - - - - - - - - - 28,900 8,945 10,735 11,808 12,398 NA
(Y million) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E
Cash flow from operating activities (A) 287,800 160,337 78,103 -94,955 -40,390 -23,114 60,293 55,190 98,016 30,060 124,603 174,597 172,094
Net Profit 448,132 367,442 127,934 -60,877 10,197 10,929 72,091 27,715 85,852 105,699 211,101 250,371 241,114
Depreciation 8,102 7,098 6,794 12,523 12,637 9,918 9,011 9,139 9,100 9,100 9,100 9,100 9,100
Cash flow from investing activities (B) -174,363 -12,728 -154,038 -164,392 89,104 -20,084 -105,394 -71,740 32,324 -10,400 -10,400 -10,400 -10,400
Capex -509,217 -568,001 -626,891 -1,368,101 -1,730,716 -1,071,026 -736,367 -1,072,852 -8 0 0 0 0
Others 334,854 555,273 472,853 1,203,709 1,819,820 1,050,942 630,973 1,001,112 32,332 -10,400 -10,400 -10,400 -10,400
Cash flow from investing activities (B) -97,810 -133,847 -102,456 -39,823 -12,873 -127,163 -11,916 -2,996 -35,149 -34,874 -70,712 -83,868 -80,767
-134,137 -102,314 -39,644 -12,801 -12,802 -11,835 -24,929 -42,766 -34,874 -70,712 -83,868 -80,767
Free cash flow (A)+(B) 113,437 147,609 -75,935 -259,347 48,714 -43,198 -45,101 -16,550 130,340 19,660 114,203 164,197 161,694
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Nintendo (7974) 60
Figure 143: Balance sheet
Source: Company data, Credit Suisse estimates
(Y million) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E
Current assets: 1,648,725 1,591,388 1,468,706 1,140,786 1,192,250 1,024,136 1,097,597 1,021,135 1,122,419 1,180,704 1,256,695 1,334,924 1,410,551
Liquidity in hand 1,220,148 1,252,321 1,171,076 958,322 903,301 795,215 915,293 909,340 1,004,597 989,383 1,032,873 1,113,203 1,194,130
Accounts and notes receivable 139,174 131,876 135,689 43,378 45,873 28,754 55,794 38,731 34,200 73,100 93,800 93,500 89,400
Inventories 144,752 124,673 92,712 78,444 178,721 160,801 76,897 40,433 34,300 68,900 80,700 78,900 77,700
Other current assets 144,651 82,518 69,229 60,642 64,355 39,366 49,613 32,631 49,321 49,321 49,321 49,321 49,321
Fixed assets: 162,042 169,598 165,591 227,615 255,628 282,274 255,346 275,766 279,952 284,152 288,352 292,552 296,752
Tangible assets 71,064 79,586 80,864 87,856 86,152 94,190 91,488 87,752 91,952 96,152 100,352 104,552 108,752
Intangible assets 2,169 4,111 5,539 7,706 10,863 12,467 12,430 9,977 10,000 10,000 10,000 10,000 10,000
Investment and other assets 88,807 85,899 79,187 132,052 158,612 175,616 151,426 178,037 178,000 178,000 178,000 178,000 178,000
Total assets 1,810,767 1,760,986 1,634,297 1,368,401 1,447,878 1,306,410 1,352,943 1,296,901 1,402,371 1,464,856 1,545,047 1,627,476 1,707,303
ROA 24.7% 20.9% 7.8% -4.4% 0.7% 0.8% 5.3% 2.1% 6.1% 7.2% 13.7% 15.4% 14.1%
Current liabilities: 540,914 407,537 333,301 155,438 194,475 155,652 144,232 98,437 153,574 181,186 190,664 189,226 188,286
Notes and accounts payable 356,774 264,613 214,646 86,700 107,045 47,665 58,464 31,857 27,476 55,088 64,566 63,128 62,188
Fixed liabilities: 15,921 16,863 19,134 21,937 25,882 32,318 41,155 37,563 37,500 37,500 37,500 37,500 37,500
Total liabilities 556,835 424,401 352,435 177,376 220,358 187,971 185,387 136,001 191,074 218,686 228,164 226,726 225,786
Minority interests 25 174 224 81 131 157 110 124 120 120 120 120 120
Shareholders' equity: 1,253,930 1,336,585 1,281,862 1,191,025 1,227,518 1,118,438 1,167,554 1,160,900 1,211,296 1,246,171 1,316,883 1,400,750 1,481,517
Total liabilities & shareholder's equity 1,810,765 1,760,986 1,634,297 1,368,401 1,447,876 1,306,409 1,352,941 1,296,901 1,402,371 1,464,856 1,545,047 1,627,476 1,707,303
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Nintendo (7974) 61
Company overview
Company history
Figure 144: Company history
Source: Company data, Credit Suisse
Year Month
1947 11
Founded as Marufuku in Imagumano, Higashikawara-cho Higashiyama Ward, Kyoto as a maker/vendor of
playing cards
1949 9 Changed name to Marufuku Co., Ltd.,
1950 3
Changed name to Nintendo Playing Card Co., Ltd. and took over production of presidential-stamp/other cards
from general partnership Yamauchi Nintendo (now Yamauchi)
1951 7 Changed name to Nintendo Playing Card
1952 10
Combined production facilities dispersed throughout Kyoto City into a plant at Fukuine-Kamitakamatsu-cho
Higashiyama Ward, Kyoto (now the Kyoto Research Center)
1959 9 Relocated head office to 60-Banchi, Fukuine-Kamitakamatsu-cho Higashiyama Ward, Kyoto
1961 9 Established Tokyo branch
1962 1 Listed on Osaka Stock Exchange’s (OSE) 2nd Section and Kyoto Stock Exchange
1963 10 Changed name to Nintendo (current name)
1964 4 Established Osaka sales office (now the Osaka Branch)
1968 6 Established Uji plant in Uji City, Kyoto Prefecture (now the Nintendo Service Center)
1970 7 Became a First Section stock on the OSE
1980 4 Established Nintendo of America as an overseas subsidiary in New York State
1982 2
Established Nintendo of America as a new overseas subsidiary in Washington State (currently a consolidated
subsidiary) and merged existing New York subsidiary into it
1983 7 Listed on TSE 1st Section
1983 11 Established new plant in Uji City, Kyoto Prefecture (now the Uji Plant)
1990 2 Established Nintendo of Europe as an overseas subsidiary in Germany (currently a consolidated subsidiary)
1993 2 Established Nintendo of France as an overseas subsidiary in Germany (currently a consolidated subsidiary)
1993 11 Established a new plant in Uji City, Kyoto Prefecture (now the Uji Okubo Plant)
2000 11 Relocated head office to 11-1 Kamitoba-hokotate-cho Minami Ward, Kyoto City
2006 7 Established Nintendo of Korea as an overseas subsidiary (currently a consolidated subsidiary)
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Nintendo (7974) 62
Board of directors
Figure 145: Board of directors
Source: Company data, Credit Suisse
Shares held
Directorate position Job Title Name Year Month Experience (hundreds)
2002 Jan Appointed as Director of Nintendo of America (current position)
2002 Jun Appointed as Director of Nintendo (current position)
2006 May Appointed as Director and Chairman (CEO) of Nintendo of America
2013 JunAppointed as Managing Director; General Manager, Corporate Analysis & Administration Division; and
General Manager, General Affairs Division
2014 Jun In charge of Personnel Division
2015 SepAppointed as Director and President (current position), Appointed as Representative Director (current
position)
1972 Jul Joined Nintendo
2000 Jun Appointed as Director (current position)
2002 May Appointed as Senior Managing Director, Appointed as Representative Director (current position)
2013 Feb General Manager, Integrated Research & Development Division
2015 Sep Appointed as Technology Fellow (current position)
1977 Apr Joined Nintendo
2000 JunAppointed as Director (current position), General Manager, Entertainment Analysis & Development
Division
2002 May Appointed as Senior Managing Director, Appointed as Representative Director (current position)
2015 Sep Appointed as Creative Fellow (current position)
1988 Apr Joined Nintendo
2012 Jul Deputy General Manager, Software Planning & Development Division
2013 Jun Appointed as Director (current position), General Manager, Software Planning & Development Division
2014 Apr In charge of Development Administration & Support Division
2015 Sep General Manager, Entertainment Planning & Development Division (current position)
Supervisor of Business Development Division, Development Administration & Support Division (current
position)
2016 Jun Appointed as Managing Executive Officer (current position)
1994 Apr Joined Nintendo
2012 May Outside Director of “The Pokémon Company” (current position)
2015 Jul General Manager, Corporate Planning Department (current position)
1996 Jun Appointed as Director (current position)
Appointed as Managing Executive Officer (current position)
Supervisor of Corporate Analysis & Administration Division (current position)
1980 Jun Joined Nintendo
2010 May General Manager, Software Planning & Development Administration Department
2014 Mar Deputy General Manager, Human Resources Division
2016 Jun Appointed as Director as Audit & Supervisory Committee Member (current position)
1979 Apr Registered as attorney-at-law
1988 May Registered as patent attorney
1988 Jun Opened Mizutani Law and Patent Office
2003 Jun Appointed as Auditor of Nintendo
2014 Jun Appointed as Director of Nintendo
2016 Jun Appointed as Director (Audit and Supervisory Committee Member) of Nintendo (current position)
1968 Apr Appointed clerk of the Ministry of Finance
2000 Jul Director, Miyazu Tax Office, Osaka Regional Taxation Bureau
2004 Jul Director, Katsuragi Tax Office, Osaka Regional Taxation Bureau
2007 Jul Head of Taxation Department No. 1, Osaka Regional Taxation Bureau
2008 Aug Registered as a certified tax accountant
2008 Sep Opened Yoshimi Mitamura Certified Tax Accountant Office
2012 Jun Appointed as Auditor of Nintendo
2016 Jun Appointed as Director (Audit & Supervisory Committee Member) of Nintendo (current position)
1994 Mar Registered as certified public accountant
1999 Jul Opened Umeyama Certified Public Accountant Office
1999 Aug Registered as a certified tax accountant
1999 Oct Opened Umeyama Certified Tax Accountant Office (now Umeyama Certified Tax Accountant LLC)
2005 Nov Appointed as Outside Auditor of KURAUDIA
2009 Jul Appointed as Representative Partner of Umeyama Certified Tax Accountant LLC (current position)
2012 Apr Appointed as Inspector (part-time) of Shiga University of Medical Science (current position)
2012 Jun Appointed as Auditor of Nintendo
2015 NovAppointed as Outside Director (Audit & Supervisory Committee Member) of KURAUDIA (current position)
2016 Jun Appointed as Director (Audit & Supervisory Committee Member) of Nintendo (current position)
Director
(Audit & Supervisory
Committee Member)
Katsuhiro Umeyama -
Director
(Audit & Supervisory
Committee Member)
Naoki Mizutani -
Director
(Audit & Supervisory
Committee Member)
Yoshimi Mitamura -
Director
Managing Executive Officer
Manager, Corporate Planning
Department
Shuntaro Furukawa 1
Director
(Audit & Supervisory
Committee Member)
Naoki Noguchi 1
Director
(Representative
Director)
Creative Fellow Shigeru Miyamoto 1
Director
Managing Executive Officer
General Manager,
Entertainment Planning &
Development Division
Shinya Takahashi 1
Director
(Representative
Director)
Technology Fellow Genyo Takeda 2
President/Director
(Representative
Director)
Tatsumi Kimishima 10
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Nintendo (7974) 63
Shareholders
Figure 146: Major shareholders
Note: As of 30 September 2016 Source: Company data, Credit Suisse
Company/group status
Figure 147: Equity-method affiliates
Source: Company data, Credit Suisse estimates
Name
Shareholding
(mn shares)
Share of total
outstanding stock (%)
JP Morgan Chase Bank 380055 170,279 12.02
State Street Bank and Trust Company 87,288 6.16
The Bank of Kyoto, Ltd. 58,802 4.15
Japan Trustee Services Bank, Ltd. (Trust Account) 49,847 3.52
The Nomura Trust and Banking Co., Ltd. (The Bank of Tokyo-
Mitsubishi UFJ, Ltd. Retiree Allowance Trust Account) 47,647 3.36
The Master Trust Bank of Japan, Ltd. (Trust Account) 34,168 2.41
The Bank of New York Mellon SA/NV 10 18,517 1.31
DeNA Co., Ltd. 17,594 1.24
State Street Bank West Client - Treaty 505234 15,400 1.09
State Street Bank and Trust Company 505225 13,168 0.93
Nintendo
directors/
executives
Nintendo
employees
Pokemon 365
Sales/licensing of
Pokemon-related
products 32 - 1 -
Procurement of Nintendo
products and manufacturing
outsourcing -
Warpstar 10
Animation production and
IP rights management 50 - 3 -
Contracted management of
product commercialization
Leasing of
Nintendo owned
properties
PUX 45
Software engine
development and licensing 27 - 1 -
Contracted software
development -
Equipment
leasingName
Capital and
Investment
(¥mn)
Funding
support
Outline of main
businesses
Share of
voting
rights
(%)
Relationship
Directors/executives terms/other
Business relationship
21 April 2017
Nintendo (7974) 64
Companies Mentioned (Price as of 20-Apr-2017) Activision Blizzard, Inc (ATVI.OQ, $49.95) Alphabet (GOOGL.OQ, $860.08) Apple Inc (AAPL.OQ, $142.44) BANDAI NAMCO Holdings Inc. (7832.T, ¥3,215) COLOPL Inc (3668.T, ¥1,018) Capcom (9697.T, ¥2,214) DeNA (2432.T, ¥2,385) Electronic Arts, Inc (EA.OQ, $91.21) GungHo Online (3765.T, ¥250) Koei Tecmo Hldg (3635.T, ¥2,224) Konami (9766.T, ¥4,495) Microsoft (MSFT.OQ, $65.5) Mixi (2121.T, ¥5,670) NetEase.com (NTES.OQ, $266.14) Nintendo (7974.T, ¥26,815, NEUTRAL[V], TP ¥30,000) Sony (6758.T, ¥3,571) Square Enix Holdings (9684.T, ¥3,150) Tencent Holdings (0700.HK, HK$236.6)
Disclosure Appendix
Analyst Certification Hanako Takahashi and Keiichi Yoneshima each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Nintendo (7974.T)
7974.T Closing Price Target Price
Date (¥) (¥) Rating
28-Oct-14 11,100 12,000 N
27-Feb-15 12,780 NR
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
N O T RA T ED
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings a re based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s tota l return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. a nd Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative att ractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associat ed risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
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Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (64% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 14% (54% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for Nintendo (7974.T)
Method: Our ¥30,000 target price for Nintendo is derived from a sum-of-the-parts model based on (1) the game console business, (2) P/E excluding cash of 18x for the smart device app business, and (3) cash on hand. Our DCF model's key inputs include ERP of 6.65% and RFR of 0.1%. We assume a debt/equity ratio of zero, beta of 1.23 (five-year adjusted average) and WACC of 8.28%. While we expect earnings to increase, the market seems to have already priced in substantial growth. Our NEUTRAL rating reflects our outlook for total returns over the next 12 months and comparisons with the rest of our coverage universe.
Risk: Risks for our ¥30,000 target price and NEUTRAL rating for Nintendo include faster (slower) Switch sales and an unexpectedly high (low) software attach rate, earnings from smart device game apps, and rapid yen depreciation (appreciation). The introduction of new hardware poses additional upside risk, while game app development delays could hurt on the downside.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (GOOGL.OQ, AAPL.OQ, ATVI.OQ, EA.OQ, NTES.OQ, 0700.HK, 6758.T, MSFT.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (GOOGL.OQ, AAPL.OQ, ATVI.OQ, MSFT.OQ) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (GOOGL.OQ, AAPL.OQ, 0700.HK, 6758.T) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (GOOGL.OQ, MSFT.OQ) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (GOOGL.OQ, AAPL.OQ, ATVI.OQ, MSFT.OQ) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (GOOGL.OQ, AAPL.OQ, ATVI.OQ, EA.OQ, 3668.T, 2432.T, NTES.OQ, 0700.HK, 6758.T, MSFT.OQ, 2121.T) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (GOOGL.OQ, AAPL.OQ, 0700.HK, 6758.T) within the past 12 months
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As of the date of this report, Credit Suisse makes a market in the following subject companies (AAPL.OQ, 0700.HK, MSFT.OQ). A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (7974.T, GOOGL.OQ, ATVI.OQ, 3668.T, 2432.T, NTES.OQ, 0700.HK, MSFT.OQ, 2121.T) within the past 12 months. Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (7974.T, GOOGL.OQ).
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Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk.
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
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