A Thought On Nintendo ($NTDOY, #innovation)

Although Nintendo missed its sales targets for the Nintendo 3DS platform, they still sold enough of the systems and its games to give credence to the argument that Nintendo’s business model (independent hardware manufacturer plus proprietary franchise software development) has not been killed and buried in a ditch by the transition to mobile, freemium, changing lifestyles, etc.

What is missing in most discussions of Nintendo’s fortunes, however, is the following fact: what has appeared to die is the profitability of Nintendo’s business model.

That is to say, Nintendo still has a market for its proprietary business model, but going forward it appears to be a marginally profitable effort. However, a business with marginal profitability could have strategic (ie, competitive, brand) value, which is why Nintendo may have decided to keep their hat in that ring.

But it is clear now that Nintendo is a box of cash, with potentially valuable franchise IP sitting on top of it, pursuing a “blue ocean” market.

In other words, Nintendo is not presently an operating company, but a development company that might transform back into an operating company at a later date.

Therefore, the analysis of the value of Nintendo now and in the future hinges on the answers to several questions:

  1. How much, and at what rate, will Nintendo Development Company (NDC) burn through their cash stockpile before finding a new operating business? And will they burn through all of it?
  2. What potential valuable uses do their existing IP have that they are not yet considering them for?
  3. Will NDC’s existing franchise IP have value in their new, blue ocean market?
  4. How valuable will the new, blue ocean market be relative to the past size and scope of the company, its present market cap, size of present cash hoard, etc.? (That is, how big is the potential future market?)
  5. Will they abandon their previous markets once they’ve secured a new market?