Has Nintendo peaked? That's the question essentially raised by Wedbush Morgan Securities analyst Michael Pachter. Following today's year-end fiscal results, which revealed Nintendo's first dip in profits within six years, Pachter has reacted, noting, "Nintendo’s recent operating performance has improved, but given its very slow growth profile and limited earnings growth, we believe its stock is approaching full value."
He continued, "Upcoming game launches (Super Mario Galaxy 2 in May and Metroid: Other M in August) should present positive catalysts for Nintendo shares. The introduction of the recently announced 3DS as early as October 2010 could boost DS sales (depending on the quality of the technology and the price point), and we continue to expect a price cut for the DS Lite and Wii to further drive hardware sales. However, we expect a decline in revenues in FY:11 and FY:12, which could keep Nintendo shares range bound."
Not only does Pachter expect a price cut on Wii, but he believes it's an absolute must for Nintendo if the company wants to keep its momentum with the console.
"In the future, lower pricing on the PS3 and Xbox 360 will provide consumers with a more difficult choice when considering a new console. The Wii enjoyed a $350 price advantage over the PS3 at launch, and a $150 advantage until September. Now, the gap has narrowed to $100, with the feature-laden PS3 a tempting purchase for prospective console households. The holiday Wii sales boost was primarily attributable to a $50 gift card promotion offered by Wal-Mart; while we expect similar promotions at holiday next year, we expect the other consoles to be lower-priced by then, further eroding the Wii’s competitive price advantage," he said. "Beginning this week, Nintendo will include Wii Sports Resort along with Wii Motion Plus (a $50 value) as part of the Wii bundle in the U.S., so we expect demand to increase through the middle part of the year. However, we believe Nintendo will have to cut price later this year in order to keep demand steady. Should the Wii price point remain at $199, we think that the December quarter poses a difficult comparison, and we expect the company to have difficulty meeting its overall sales goal for the fiscal year."
Pachter also countered Nintendo of America boss Reggie Fils-Aime's assertion that Apple is still not a threat. "The DSi’s $169 price point and the DSi XL’s $189 price point make the purchase of a $199 iPod Touch more tempting in 2010. While we think that the DS is a superior gaming platform, the iPod is a more versatile device, and has a 'coolness' factor that is difficult to overcome. The introduction of the 3DS some time this fiscal year may serve to hold off substitution of iPod Touch for DS, but we think that ultimately, Apple will gain share in the handheld market," he concluded.
