Nintendo Co., Ltd. (OTC: NTDOY) is having a bad day. The price of its ADRs are down over 11% at the time of this writing. The catalyst? Well, the video-game giant, which has seen a new renaissance the last couple years with the incredible success of the Wii and DS platforms, has lowered its guidance because of currency issues and a belief that sales of the Wii could slow a bit (this article provides the details).
A strong yen is making things a little more difficult. Nintendo now believes it will earn $5.9 billion in terms of operating profit for its full fiscal year. Analysts thought that the company was set to earn a lot more than that. Furthermore, management has become conservative on Wii sales, believing that it will sell 26.5 million consoles instead of 27.5 million consoles (the flip side, though, is that it should sell more DS devices). So, even though Nintendo increased its operating profit by over 20% in the holiday quarter, Wall Street wasn't happy at all with the business.
You've got to believe that Sony Corporation (NYSE: SNE) and Microsoft Corporation (NASDAQ: MSFT) are chuckling at the news. I mean, when you've been kicked to the ground repeatedly by the Wii -- which, in terms of technological strength, is like a David to the Goliath-like processing power of the PlayStation 3 and the Xbox 360 -- I'd have to assume that execs at those companies are welcoming a potential slowdown in the popular gaming system.
But they better not take this news with too much smug satisfaction. The Wii is still a force to be reckoned with, and, quite frankly, there's always the possibility that Nintendo could beat expectations. Sony and Microsoft still have a lot of marketing work ahead of them, as well as further opportunity to explore pricing strategies (as painful a concept as that might be). But can Nintendo be considered a buy here? I like the sudden drop as a potential trade, but I'd ideally like to see the ADRs retrace to the 52-week low of $32 and find support there (of course, when is anything ever ideal in the stock market?). So, my overall opinion is that it's probably better to be conservative and avoid Nintendo for now until it gets a little lower.
Disclosure: I don't own any company mentioned; positions can change without notice.
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