Nintendo NTDOY.PK UPDATE

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Nintendo (NTDOY.PK) UPDATE!!

• Updated 5/7/06 by Nick Germain
• We bought about 2000 of NTDOY.PK at about
  18.00/share (sorry, charts currently not very
  clear on the FMA website). Its currently at
  19.50/share! It could go up even more this week
  because
• The Electronic Entertainment Expo (E3), the
  biggest trade show in gaming, is here (Press
  Conferences 5/8-5/9 Actual Show 5/10-5/12)!
  XBox360, PS3, Wii (replacing Revolution as
  Nintendo console name) will be shown all week
  with many secrets revealed.
• Nintendo Wii Press Conference is at 1230pm
  Eastern Time on Tuesday 5/9. What will happen??
  Will the stock price jump (up or down) during the
  announcements?? (SEE NEXT SLIDE) ?

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Recommended websites to follow E3/Nintendo!

• http//wii.nintendo.com/ - see new branding
  campaign!
  
• http//e3.nintendo.com/ - Nintendo official E3
  website
  
• www.revolutionreport.com - best independent Wii
  website (notice how domain name not changed yet)
  
• www.ign.com - great gaming site for ALL games
  (but almost TOO MUCH content, and E3 info
  requires subscription)
  
• www.gamespot.com even better gaming
  website for E3 ? get live feeds from the Nintendo
  Press Conference on Tuesday 5/9 at 1230pm (and
  press conferences for other systems too!) best
  place to watch video of E3
• Read any webblogs you can find to see what gamers
  and non-gamers think about the new systems? great
  way to help predict who will become the winners
  and losers!
• http//finance.yahoo.com if you dont know
  already, go here to check out the stock price of
  Nintendo (NTDOY.PK), Sony (SNE), Microsoft (MSFT)
  and others to see if E3 announcements have an
  effect, and read the yahoo headlines to see what
  Wall Street thinks. Nintendo stock is most likely
  to be influenced by the E3 event because
  virtually their entire business is gaming, and
  they have been VERY secretive with information
  thus far. It should be interesting!
• READ ON IF YOU MISSED THE PRESENTATION 5 WEEKS
  AGO AND WANT TO LEARN MORE ABOUT THE VIDEOGAME
  INDUSTRY AND NINTENDO AS INVESTING
  OPPORTUNITIES!!

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Why Nintendo, Why now?

• By Nick Germain and Mike Percia
• 3/31/06

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Efficient Market Hypothesis

• There are three forms of the efficient market
  hypothesis
  
• The "Weak" form asserts that all past market
  prices and data are fully reflected in securities
  prices. In other words, technical analysis is of
  no use.
• The "Semistrong" form asserts that all publicly
  available information is fully reflected in
  securities prices. In other words, fundamental
  analysis is of no use.
• The "Strong" form asserts that all information is
  fully reflected in securities prices. In other
  words, even insider information is of no use.

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Why Isnt Nintendos intrinsic value fully
reflected in its market price?

• Lack of public information and minimal analyst
  coverage.
  
• An example
• The lack of information is not necessarily a
  bad thing, in Nintendos case it is partially
  because the stock is listed on the pink sheets

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Some Info about Pink Sheets

• Companies will typically be listed on the
  OTCBB for one of two reasons
  
• (1) The company has been de-listed from a
  major exchange.
  
• (2) The company may be listed on the OTCBB
  because it is unable to meet the initial listing
  requirements of the NASDAQ or NYSE. In such a
  case, a company may choose to test the waters of
  the OTCBB, using it as a stepping stone before
  leaping into the larger exchanges and markets.
• The Pink Sheets are different from the OTCBB.
  Typically, companies are on the Pink Sheets
  because either they are too small to be listed on
  a national exchange or they do not wish to make
  their budgets and accounting statements public.
  To avoid having to file with the SEC, some large
  foreign companies such as Nestle S.A. have
  penetrated the American securities markets
  through the Pink Sheets. Companies listed on the
  Pink Sheets can be difficult to analyze because
  it is tough to obtain accurate information about
  them. The companies on the Pink Sheets are
  usually penny stocks and are often targets of
  price manipulation.

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Pink Sheets

• The Pink Sheets are different from the
  OTCBB. Typically, companies are on the Pink
  Sheets because either they are too small to be
  listed on a national exchange or they do not wish
  to make their budgets and accounting statements
  public.
• To avoid having to file with the SEC, some large
  foreign companies such as Nestle S.A. have
  penetrated the American securities markets
  through the Pink Sheets.
• Companies listed on the Pink Sheets can be
  difficult to analyze because it is tough to
  obtain accurate information about them. The
  companies on the Pink Sheets are usually penny
  stocks and are often targets of price
  manipulation.

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Nintendos Target Market

• What group of people do Sony and Microsoft
  target?
  
• What group of people is Nintendo targeting?

Nintendo's Target Market
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Nintendos Target Market

• The company isnt only focusing on multiple age
  groups.
  
• Nintendo's other Strategy

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The competition..
Sony and Microsoft
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Nintendos Historical Financials
2005 Year-End Financials Debt Ratio 0.1 Return
on Equity 9.5 Cash ( mil.) 7,370.8 Current Rat
io 4.84
LT Debt ( mil.) 4.3
Balance Sheet
Unit Sales
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NTDOY V. 7974 (TSE)
Comparison Chart
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The Players

• Microsoft- XBox360
• Sony- PSP, PS3
• Nintendo- DS, Revolution

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XBox360

• Early launch, fall 2005 in US
• No killer app right now
• Halo 3, Gears of War fall 2006 release??
• Great graphics, but short on innovative gameplay
• Major advantage- Xbox Live, online play
• Major disadvantage- cant penetrate Japanese
  Market
  
• Brief Verdict- has found success in hardcore US
  market
  

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PSP

• Has a wow factor as a portable system
• Games have full-sized console quality
• Impressive game launch, spring 2006 in US
• However, some major mistakes
• High price point, too much gadgetry
• Since launch, very few original, must-have
  games
  
• 96 male user-base!
• Brief Verdict- Established as the portable choice
  for the hardcore gamer, but future is very
  uncertain
  

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PS3

• Will be a technological monster
• But who really cares about this?
• Major Advantage- can leverage current PS2 market
  share and brand power
  
• Major Disadvantages-
• Price point- 500 at launch??
• Unit costs- 800-900 ? 300-400 LOSS per
  system??
  
• System launch delayed
• To bring costs down?
• BlueRay/HD-DVD ? a critical issue
• Brief Verdict Sony has a lot going for it, but
  current strategy very unclear, many unnecessary
  risks
  

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Nintendo DS

• Launched with little fanfare
• Few games that took advantage of new technology
• Surprising success of innovative games
• Almost a re-birth of the system
• Major Advantage- quickly becoming system of
  choice for non-hardcore games
  
• See content later in presentation

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Revolution

• Very little information at the moment
• Average American consumer knows next to nothing
  about it
  
• Unlike Microsoft/Sony, focusing RD on new
  experiences more than system power
  
• Major Advantage- Price point likely 150-200,
  about half the cost of 360, PS3
  
• Brief Verdict- Not enough known to make clear
  judgement on future of Revolution, but
  developments are promising
  

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Its all about content!

• In the long-run, innovation is what keeps the
  gaming industry going
  
• Markets have changed over time, and will continue
  to change
  
• Next are some games that show the direction of
  the next innovations

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Eyetoy Punch
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Nintendogs
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Nintendogs

• Over 4.5 million copies sold worldwide as of
  Feb., 2006!
  
• Over 1 million Japan
• Over 1.5 million US
• Over 2 million Europe
• Many females, young and old

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Guitar Hero
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Brain Age series

• Games that make you smarter
• 3 games have sold more than 5 million copies in
  Japan
  
• First game in series will be released mid-April

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Recent Keynote Speech

• Nintendo knows where its headed after struggling
  a few years
  
• There is NO direct competition

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Revolution Trailer
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Risks

• 1. Barrier to Information exists
• 2. Currency Risk
• 3. Possibility of Launch Delay
• 4. Consumer Disappointment
• 5. Other Market Conditions

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Proposal

• We are proposing that the Portfolio Committee buy
  around 2,000 worth of Nintendo, with an option
  to buy more next academic year assuming favorable
  conditions still exist.
• As a bonus, this will be a fun company to follow,
  with many key events taking place during the rest
  of spring quarter, and through the end of 2006.
  

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Discussion

• What does everyone think? Did we miss anything
  critical?