PS5

It seems like we are slowly being drip fed next gen information from Sony either directly or indirectly. Last week we finally got our first look at their idea of a next generation controller. As mentioned last week, the DualSense is not playing it safe. The name change, the color scheme and the shape change from the PlayStation DualShock formula are bold choices. Unsure of how these choices will be received as of yet, not to mention the actual new features in the controller. The touchpad idea didn’t equate to a revolutionary change in gameplay, so we will have to see how developers integrate some of the new features. According to an article this week on Bloomberg from Takashi Mochizuki, a main reason for the reveal of the controller was due to the worry of it leaking before Sony could officially announced it.

As the controllers final design and features have been cemented, it was now being sent to developers for them to use and implement into their next generation of games. According to the article “the virus has already upended Sony’s promotional plans…recently it was forced to reveal its DualSense PS5 controller in a hurried fashion” This is going based on anonymous sources the article is using as Sony did not make any official comment or has yet to publicly address their plans for the PS5.

Although the heart of the article is focusing on how the PS5 is progressing for launch this fall.  As of now things are still on schedule for this holiday, although at a seemingly reduced availability. A few weeks ago Phil Spencer did some press with a handful of outlets.  The biggest takeaway from everything that Phil said was that it’s all or nothing for the Xbox Series X launch. Microsoft aren’t entertaining the idea of a staggered launch in different regions and it sounds like no matter what the reduced production is the Xbox Series X will still be launching this fall. It sounds like software will be reduced but the time between now and holiday 2020 is vast and trying to predict what will happen with this pandemic is anyone’s guess. 

Phil’s words clearly made their way to Sony as they don’t plan on letting Microsoft get a head start on launch. Sources familiar with the situation said “Sony remains unlikely to delay the launch of the PS5 from the critical year-end shopping season. So long as archrival Microsoft Corp. doesn’t push back the release of its next-generation Xbox”  This statement echoes what it seems like we have been witnessing from Sony. They are currently working outside of their comfort zone and are being forced to make decisions due to the pandemic. 

The Series X seems more powerful system with a larger SSD but power is not equal and we won’t know the difference in the silicon until we can see these systems running games. It was assumed that the Series X was going to the premium systems and therefore would be the more expensive system; however, it seems like that might not be the situation this fall.  The article states that developers are expecting the price of the system to be between 499 and 549 US.  According to Bloomberg Intelligence Matthew Kanterman the increased component cost and scarcity due to the global pandemic has raised the price that it would take for Sony to break even. 

It was reported about a month ago from Bloomberg as well that the actual hard cost of the PS5 was around 450.  The higher cost was mostly due to the stress the pandemic is putting on logistical channels. When using the PS4 as a baseline that launched at a higher retail price then it’s manufacturing cost and it seems unlikely that Sony will want to have the PS5 as a loss leader. All this information makes it seem very unlikely that the PS5 will launch at anything less than 499

I assumed that based on the PS3 price, Microsoft would be taking a risk pricing their console at $599 but that is the likely price I think they would settle on with the outside chance of $549.  You also have to take into account that when Microsoft launched the Xbox One X, it was priced at $499 and the Series X seems like a massive jump in technology compared to it. Phil Spencer has also said publicly that with the launch of the Series X, Microsoft will not be beat on price and power again. We saw what happened this generation when the Xbox One was out of step with the PS4 compared to price and power.  I can’t remember how many graphical comparison videos I saw at the start of the generation with Xbox looking much worse. 

The wrinkle here is that the article is assuming that the PS5 might be priced as high as $549 which seems much higher than many initially assumed it would be based on its lowered specs. I thought that the new Sony console would be priced 50-100 dollars less than the Xbox Series X and would leave a gap between their price and Microsoft for an advantage. This doesn’t seem like a possibility anymore

I have two minds when it comes to how Sony should be pricing the PS5. On the one hand, Sony proved with the PS4 that they are able to deliver a top tier gaming experience with some amazing first party games, which justifies the higher price point and allows it to sit next to the Series X on a shelf.  You also have the added benefit of understanding who will be buying the console at launch and that would be the early adopters who are already sold on the system despite the lack of information we have. 

On the other hand pricing the console lower makes sense for the people who aren’t hardcore and don’t know the difference between the clock speeds on the two systems.  The question is just how many casual gamers are planning on buying a new console this year especially considering the situation currently happening. 

If I was to give a definitive answer on what i think is going to happen is that the consoles will launch at the same price of 549. I think that Sony does not want to lose money on selling the system and I think they have a track record of providing amazing experiences. Microsoft will take a loss on the system so that they have the advantage of being the higher spec system at the same price and I think Microsoft is thinking much more long term with the Series X. Services such as Project Xcloud and GamePass will be the heartbeat of the this generation for Microsoft. These services are similar to Netflix in that you never really cancel because they value they offer for their low price.  

The higher pricing theory for Sony is also amplified by the Bloomberg article and how many units the company is planning to ship by the end of the fiscal year. Sony is planning to ship upwards of 6 million units by the end of March 2021 which is less than the 7.5 the PS4 shopped during the same window.  People familiar with the situation said  “The Tokyo-based tech giant is limiting its initial production run in part because it expects the PS5’s ambitious specs to weigh on demand by leading to a high price at launch”

It seems like without a doubt, neither side wants to be the one to blink and both of these consoles will be launching this holiday. I can’t wait to find out more information.

Nintendo FY2019

I am not a licensed accountant, lawyer or financial advisor and these are just my opinions about the Nintendo Stock. I am currently a shareholder as I have invested with my own money. I am just giving my opinion on how I think Nintendo looks moving forward from a business standpoint, which comes from a combination of business background and gaming experience. I can’t predict the future and I am in no way telling you what to do with your money. Please be smart and enjoy my thoughts.

With Nintendo around a month away from releasing their FY2019 earnings report for the 12 month period ending March 31, 2020, and the world being turned upside down, here’s how I think things will look for Nintendo for FY2019 and looking forward at FY2020

The Nintendo Switch has seen a steady increase in hardware sales since it’s release in large part due to it’s innovation and it’s growing first party lineup of must have games. However, the recent global pandemic has lead to an increased demand for the Nintendo console as people look for timeless, family friendly entertainment as they are quarantined at home. Nintendo Factories have not shut down completely, nor have their suppliers but the slowdown has greatly reduced supply of the Switch worldwide as the system is mostly sold out or very scare globally. A Nintendo representative gave a statement to GameSpot towards the end of March saying “Nintendo Switch hardware is selling out at various retail locations in the US but more systems are on the way”

Sold out systems isn’t all good news for Nintendo as Bloomberg reported that due to the Covid-19 outbreak, the company has seen production reduced at some of its factories. Factory shutdowns across China have affected Nintendos ability to manufacture at their higher levels due to limited components. Although hardware is sold out mostly, Nintendo could likely be selling more if they could keep up with demand.

Not only has hardware seen a spike in sales but software has also seen a drastic uptick as well. The Nintendo Switch already has a strong library with six games having sold over ten million units and countless more that have easily sold over a million. Nintendo has struck mainstream gold again with the release of Animal Crossing New Horizons. According to Famitsu, the fifth mainline entry in the series has sold 2.6 million copies in Japan in just ten days.

The sales in Japan alone bode extremely well for the FY2019 earnings report that will reveal just how well the game has done globally with just 11 days on the books before the period ended on March 31. Many people think the success of New Horizons is due to the recent pandemic and although it may have helped the game, hype levels seemed higher for this title before most of the world went into lockdown. Even if it was right place at the right time, a sale is still a sale and this was just the relaxed experience people were looking for, pandemic or not, we all need escapism at some point.

Switch Pro Model and Cons

The DS was Nintendo’s most successful system to date, with multiple iterations and over 150 million units sold over it’s ten year life cycle. This includes the base DS, DS Lite, DSI and DSI XL. Nintendo has a pattern of iterating on their systems with the 3DS having six variants when you consider the 2DS as part of the same family. With the Switch being barely three years old at this point, introducing more variants in the years to come is a large opportunity that is inline with Nintendo’s history. This is a major opportunity area as the President of Nintendo has stated that the core of their operations is having dedicated gaming platform. With the Switch being basically the sole focus of the company, I strongly expect to see more models alongside the Lite and the base.

Unfortunately, the “Switch Pro” model is not likely coming until fiscal year 2021 which begins April 2021. Nintendo President Shuntaro Furukawa said “We have no plans to launch a new Nintendo Switch model during 2020” Although sometimes corporations don’t reveal their true plans, there is also all of the logistical problems caused by the pandemic. With new systems likely on track for holiday 2020 from Microsoft and Sony, releasing the pro model this year goes against the “Blue Ocean Strategy” that has benefited Nintendo since they stopped trying to compete on graphical power.

More Places

A large part of how the company plans to grow their ecosystem is bringing Nintendo to places outside of the world of gaming. We have already seen them partner with Levis and Uniqlo in unconventional ways. Another way is how they just announced a partnership with Lego, the largest toy brand in the world, to create an interactive Mario themed collection. This grassroots approach should work in the longterm for kids that might be considered too young to play video games at the moment but can play with Lego. These kids should form an attachment with these characters and when they are old enough, hopefully they will want to get into the world of gaming with Nintendo. There are also the kids at heart and collectors who will be buying these sets right away as well.

Nintendo is also taking another unconventional path by branching out into the world of theme parks in a venture with Universal Studios. The experiment will start in Japan followed by the US; however, Covid-19 and social distancing will definitely temper expectations in the short term but in the long term the hope is that the world will once again return to normalcy and people will gather in large crowds. The first park was supposed to open in Osaka ahead of the 2020 Olympics but its clear that large gatherings are off the table for 2020.

More Players

In a mission statement from the president of Nintendo, one of the areas they plan to raise corporate value is by getting their IP into the hands of more players. Smart Devices, including phones and tablets is an area that Nintendo has barely began exploring with only a handful of games with varying levels of success. Nintendo has learned many valuable lessons already regarding smart devices including free to play, free to start, AR, micro transactions and many more. This information is invaluable and I only see Nintendo becoming more profitable using this method moving forward as the amount of smartphone owners only gets bigger every day.  

Another opportunity that Nintendo has in terms of getting their content into the hands of more players involves doing another retro console. Nintendo skipped 2018 and 2019 after releasing the NES classic and SNES classic in back to back years in 2016 and 2017.  It’s possible we havent seen a new mini classic from Nintendo felt like the market for mini retro consoles got watered down with companies like Sega, Atari and Sony joining the fray.

There are only so many options that you can recreate before you catch up with time itself, but I still think that Nintendo has an opportunity with the N64 and the Gameboy. With the current pandemic, financials have become a worry for some, but the retro consoles do provide the warmth and comfort of nostalgia that is greatly needed during times like these. These mini retro consoles from Nintendo are also priced low enough that most people could justify the purchase, even during these tougher financial times for some.

The only reason I think this won’t happen this year is due to the recent logistical problems. Bumping production of Switch and Switch Lite for a retro console when Nintendo needs to build up stock of the Switch for the holiday season seems like it might not happen this year. However, it likely isn’t far off in the future for Nintendo.

Looking Ahead

The only pessimistic view I have for the company moving forward is that it’s current share price of around 50 is close to the two year high of 55. Although, the all time high of the stock was 78.50 back in October of 2007 which was about a year after the release of the Wii or as its better known, the only console your parents ever bought for themselves. This means a known value the company once held could lead to a 60 percent ROI. The Switch will likely outsell the Wii by the end of it’s run, but it does need to increase it’s attach rate, which the average games each system owner purchases as the Wii is currently around 50 percent better

The original forecast for FY2019 was selling 18 million Switch units worldwide. This was already a great increase from FY2018 but with such fantastic performance in Q3, Nintendo had modified its forecast from 18 to 19.5 million units sold. They also increased the projections on software from 125 to 140 million units. At the end of Q3, which is historically the best quarter since it’s around most of the holidays, Switch hardware sales globally were at 17.74 million and software sales were at 123.3 million. Considering that most places are sold out of the console and how well Animal Crossing sales are being reported on just in Japan, it’s safe to assume that Nintendo will be beating those projections.

The other benefit is how their digital sales have been increasing at an astonishing rate with their last earnings report showing an almost 50 percent year on year increase in digital sales. Digital sales fluctuate between 20-30% of Nintendos total sales which means this is another area Nintendo can grow. Combine beating their increased revised forecast, and making more profit on digital, and Nintendo looks poised for a great FY2019 earnings report on May 7. 

Looking ahead for FY2020, despite factory slowdowns, Nintendo looks to have another great year ahead with starting off the year with strong Animal Crossing sales from April onwards, increased digital revenue from people in quarantine, and the rumoured 35th anniversary of Mario should form the foundation for another great fiscal year.