Since the end of the 1980s, Nintendo (OTC: NTDOY) has been a dominant force in the video game industry. It continually releases popular hardware devices like the Nintendo Switch and has built a comprehensive library of entertainment franchises like Mario and Zelda. Historically, the company hasn’t made much movement outside of video games.
All of this could change with new company initiatives coming in the next few years. Here are four ways Nintendo is going beyond video games and what that could mean for the stock.
1. Theme parks
Nintendo has partnered with Comcast‘s (NASDAQ: CMCSA) Universal to build four different Nintendo-based theme parks around the world. Dubbed Super Nintendo World, the parks will be located in Japan, California, Florida, and Singapore, all as subsets of the existing Universal theme park locations. The park in Japan has just opened, while the other three are expected to open within the next five years.
In Japan, the main attraction is a Mario Kart ride where people can wear augmented reality (AR) glasses to feel immersed in one of the game’s famous racing circuits. The parks aren’t as developed as those of Universal or Disney‘s, which took decades to get to where they are today, but they seem like a great place for families with young children to spend an afternoon.
2. Stores and merchandise
Nintendo has always sold merchandise and partnered with other retailers to build brand awareness around the world, but the company is now leaning into selling physical goods itself. This happens in particular through its online store, but also in a growing number of physical stores around the world. With stores only in Tokyo, New York and Tel Aviv, growth has been slow, but there are indications that some expansion is underway. Five pop-up stores are opening in Japan this summer, demonstrating Nintendo’s willingness to expand its physical retail offering.
3. Movies and television
To switch to video entertainment, Nintendo has teamed up with Illumination Studios (another Comcast subsidiary), one of the best animation studios in the world. The two companies are working on a Super Mario film set to launch in 2022, which could be a stepping stone for other movies or TV shows to follow.
Nintendo president Shuntaro Furukawa said this year that animation is something the company is looking at closely and will likely go beyond the Mario franchise. If Nintendo can start to generate a constant number of movies and possibly TV shows, the business could become a constant profit generator for the foreseeable future. Plus, with the arrival of Illumination Founder and CEO Chris Meledandri to Nintendo’s board, it’s further proof that Nintendo takes video entertainment seriously.
4. Augmented reality
In March of this year, Nintendo announced its partnership with Niantic (a company in which it has a major stake) to create augmented reality apps based on Nintendo’s various franchises. Niantic is the company behind the hit Pokémon GO game, so it has one of the best AR technologies in the world. The first game is based on the lesser known Pikmin franchise and will launch later this year.
Interestingly, the press release states that these apps will try to be larger than traditional games, making them more interactive with Niantic’s AR capabilities. For example, the Pikmin The app is “designed to encourage walking and make activity more enjoyable,” according to the press release.
What this means for the stock
Nintendo is a slow moving company, but as you can see the management has multiple initiatives to grow the business over the next decade. The stock is currently trading at a market cap of $ 68 billion, and only $ 53 billion if you omit the cash on the company’s balance sheet. With operating profit of $ 5.8 billion over the past 12 months, the stock is trading at a cheap price-to-operating profit ratio of nine.
If the company can implement these new initiatives while keeping video game profits stable, that operating profit figure will grow steadily over the next decade, which would be great news for all Nintendo shareholders.
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