Nintendo Shares Drop Following Cut in Earnings Forecast

[fitbabits]

It had to happen sooner or later. Much like Sony 'borrowed' the idea of motion control for the PlayStation 3, and much like Microsoft 'borrowed' the idea of avatars for the Xbox 360, it seems it's now Nintendo's turn to follow a trend set by its competitors. This one, though, has deeper ramifications than a shoddy Warhawk motion control demonstration.

Following a cut in its game and console sales earnings forecast, Nintendo's shares dropped 12% in Japan - the first such drop in a very long time, and also further evidence that video gaming is NOT a recession-proof industry.

So just how far did Nintendo's shares drop in real terms? Try an even 4,000 yen, from over 32,000 yen down to 28,300.

As with Sony, a big contributor here is believed to be the sky-high yen.

However, some analysts believe that the new forecast is a little on the conservative side, with Nomura Securities stating, "although economic conditions are bad, we think the company's (annual) forecasts are too cautious."

Source - Yahoo! (http://news.yahoo.com/s/nm/20090130/bs_nm/us_nintendo)

[DarkDay]

Pretty scary to hear that a company that sells their product so dam well they can barely keep up with the demand is still dropping.

[PathMaster]

Some info I saw mentioned that maybe it was due to some supply demand issues. IE Japan market has tons of supply, but demand has dwindled, while Europe and America are in the opposite situation. A little change in manufacturing should help this in the long run.

[mister slim]

Nintendo fiscally conservative? Surely they're talking about Atari or Midway?

[Khrymsyn]

This is one thing that still ticks me off greatly about the stock market.

The company is still making money, but because they aren't making ENOUGH money or as much money as they promised, somehow that's seen as a failure and the company's stock worth suffers because of it.

You know, there was a time where just making a profit and surviving was the sign of a good business.

[quidmonkey]

Nintendo fiscally conservative? Surely they're talking about Atari or Midway?

Nintendo tends to be conservative with its forecasts; and therefore, also tends to exceed those forecasts, usually by large margins.

[MagGnome]

This is one thing that still ticks me off greatly about the stock market.

The company is still making money, but because they aren't making ENOUGH money or as much money as they promised, somehow that's seen as a failure and the company's stock worth suffers because of it.

You know, there was a time where just making a profit and surviving was the sign of a good business.


I completely agree. Nowadays companies have to grow, grow, grow, no matter the cost. This has led to a number of problems, including layoffs, monopolies, an excess of government deregulation, etc. Unless the consequences are monetary, most corporations simply don't care.

[biosc1]

Hey, if you're not growing you're shrinking, right? So said the president at Starbucks at one time.

I agree, though, that not making as much as the previous time period, but still making money should not be a cause for alarm in the current economic climate (I like that lingo).

[Telefrog]

I agree, in principle, with Mags and bio, but I also completely understand and empathize with the stockholders that desire constant growth. After all, if it were my shares of company X not returning a profit, I'd sell them as well.

[Urizen]

This is why owning NOJ stock (or any other Japanese stock, for that matter) is useless.

They are held hostage to their currency more than anything they do for themselves. One of the reasons Nintendo got away with a profitable GC last generation is because of the really weak Yen at the time. Now as the US puts together a near trillion dollar stimulus package - money they will just have to print - inflation kicks in and the US dollar weakens. The Yen gets strong against the regions where Nintendo is making the most money.

A 30% fluctuation in the value of the currency is huge, and Nintendo could not have accounted for it. Yes, they also lowered forecasts because they want to hedge their bets against the economy and the fact that they have been raising forecasts every quarter for the past 3 or 4 years.

[MagGnome]

I agree, in principle, with Mags and bio, but I also completely understand and empathize with the stockholders that desire constant growth. After all, if it were my shares of company X not returning a profit, I'd sell them as well.

I know what you are saying. It seems to me that the system as it stands is inherently broken.

[Ravenlock]

I've had some lengthy conversations with my coworkers about this, and we really can't understand what makes the people who run businesses in a modern environment feel like they absolutely must keep growing to the point where their business is as large as it can possibly be (and frequently larger than it can possibly be), to the point where they'll incur needless expenses and risk to glut a market, just hoping for a tiny, arguably unneeded profit increase.

Example: every goddamn time they build a Home Depot somewhere, a Lowe's goes up across the street within a year. Every time a Target goes up, you can bet a Walmart will be there soon. Does that block need two giant home improvement stores? Of course it doesn't, it's questionable whether the area can even support one. But if our competitors can make money there, that means there's a pie we're not getting a piece of, so we'll essentially bet whatever it costs to open an entire superstore across the street that we can beat them out. And every time this wager is made, one of those companies eventually fails in that spot and withdraws. It's like the front line of a war, and the amount of waste is stunning.

And I know that stuff has been going on forever, but what breaks my heart is to see small businesses I really like ALSO start behaving this way as soon as they're rewarded with a taste of success. There's a small grocery operation near where I live that focuses primarily on organic and fairly local produce, and I was a big fan of them a year ago when they started up, but as more and more people started finding them, they got bigger, their quality started to drop, their prices went up, etc etc. Gotta get bigger, gotta make more money, gotta cut some corners to do it.

Sustenance is apparently, literally, never enough. Success must imply growth until growth causes failure. Why is this? The best we've come up with is that almost all modern businesses, once they reach a certain (not even very big) size, are governed by shareholding investors, because you can't get the money required to have a business without them - and those investors literally only do care about the bottom line, and if it isn't going up, they're pulling out.

Which is very sad, and obviously unsustainable in perpetuity for anyone, and unsustainable even in the short term for most.

EDIT: So kind of what Telefrog said, only I think it's really sad and want us to find a way to change it. ;)

[MagGnome]

Your post is spot-on Ravenlock.

As I said above, the modern economy is broken.

[Raen]

I'd agree that the desire for growth is crazy. However the linked story states that Nintendo cut their profit prediction by 16%. That's a pretty significant chunk of their annual profit. Even if they are conservative as stated, it still seems like they're going to lose a fairly large amount of profit compared to original predictions. A cut of that size is obviously going to effect the worth of the company, which is in turn going to effect the price of shares. Market capitalization isn't necessarily an accurate indicator of the worth of the company, but it does work to some extent. Of course it factors in other concepts such as perceived 'trust' in a company, but the simple monetary worth of a company will definitely be part of it.

[MagGnome]

Good post Raen.

Would have been a great one if you could spell "lose" correctly. :p

I've seen that word misspelled dozens of times lately, and for some reason it really irks me.

[Raen]

Good post Raen.

Would have been a great one if you could spell "lose" correctly. :p

I've seen that word misspelled dozens of times lately, and for some reason it really irks me.

No idea what you're talking about Mags >.> I blame lack of sleep. Thanks for the praise though :) I'm still waiting to be yelled at for being wrong in some way.

[MagGnome]

No idea what you're talking about Mags >.> I blame lack of sleep. Thanks for the praise though :) I'm still waiting to be yelled at for being wrong in some way.

No problem, I give what help I can. :D