The news continues to be bad for Nintendo (OTC: NTDOY) shareholders. The Wii is slowing down. While it remains a powerful force in gaming hardware, it's just not as compelling in terms of sales as it used to be.
Bloomberg tells the tale. The data for April sales show that the Wii sold less than half as many consoles in the U.S. this year as compared to April of 2008. Last month, the Wii moved 340,000 units. A year ago, the Wii sold over 700,000 units. That's a big difference. Now, don't get to thinking that Nintendo has now given up its crown. The Wii still outsells both the Sony (NYSE: SNE) PlayStation 3 and Microsoft's (NASDAQ: MSFT) Xbox 360 in domestic locations.
Nevertheless, interest in a price cut for the Wii is gaining. In fact, GameStop (NYSE: GME) is again talking about hardware price reductions. We know the retailer definitely wants one for the PlayStation 3, but CEO Dan DeMatteo clearly would love to see the Wii at a cheaper cost to the consumer. Beth Gaston Moon noted that the guidance wasn't so hot in GameStop's recent earnings report. Looking at the transcript on Seeking Alpha of the company's conference call, I see that the topic of a price cut is, in many respects, an important part of the video-game story at this point of the new console cycle.
But will Nintendo resist the idea of a price cut? I doubt the company will announce one soon (I think Sony, on the other hand, will try to put together some different pricing structures sooner rather than later). Still, this leaves the issue of the drop in Wii sales. I go back and forth in terms of what I think Nintendo should do. First, I think the company definitely needs to scale back its production of the console. Let supply and demand equilibrate. Second, Nintendo may want to engage a big marketing push to get those who no longer feel the urge to buy a Wii back into the fold, maybe offer new, more exciting sales bundles, something like that. Third, I think Nintendo should consider promoting a cheaper Wii early next year, after Christmas is over. I know the powers that be at GameStop don't want to hear that, but I figure that maybe Nintendo can get through one more holiday season with a $250 Wii.
Without a doubt, Nintendo's ADRs are not on my investment wish list. They closed on Friday at $33.50. I'd have to see them way below $30 to begin a round of fresh due diligence. As of now, all I need to see is the Wii sales performance to know that I wouldn't be comfortable holding Nintendo. If you buy now, keep in mind that you'd essentially be speculating on a headline announcing a price reduction for the Wii to emerge on the news feeds. That won't be a bad speculative move at some point in the future, but buying this thesis right now would probably be too early. And if you do want to speculate in such fashion, make sure you are deploying only risk capital. Regular capital would probably be better served by other investment ideas.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
5-24-2009 @ 4:23PM
fatimah said...
i want the wii so bad but waiting for a price cut.
5-26-2009 @ 6:07PM
Joseph Leslie said...
NINTENDO restricted supply of the Wii and was very heartless using this tactic, but at the same time promoted the hell out of the product! Many kids were upset at Christmas when Santa forgot the Wii they asked him for!
6-05-2009 @ 11:55PM
LongshotX said...
The Wii is garbage unless you get a USB loader...then you can play whatever "homebrew" game you want.