Expert Investor
Author: Mauricio Carrillo
Senior Reporter
Mauricio Carrillo

ValueAct Builds up a $1.1B Stake in Nintendo; Says: Next Netflix And Disney+

Nintendo is called to become one of the largest digital media services in the world. Or at least it is what San Francisco activist investor firm ValueAct believes and the reason the firm decided to increase its stake in the Mario Bros' company to $1.1B, according to a letter seen by Reuters.

After starting its position in Nintendo in April 2019, ValeAct has been growing it calmly in the past year, and it took profit of the sell-off in February and March to build up is bet to a very decent 2% stake, or about 2.6 million units of Nintendo shares, known as NTDOY in Wall Street, and 7974 in Tokyo.

According to the sources, Nintendo didn't want to talk too much about the move. However, a spokesperson from the company told Reuters that Nintendo is well aware of the stake, and they are communicating with ValueAct about that.

Nintendo said:

We are aware that ValueAct is holding a stake, and we've been engaged in dialogue with them. We don't disclose the content of our dialogue with our investors.

Nintendo Would be The Next Netflix And Disney+

However, according to the letter to its investors, ValueAct shared its vision about the Japanese giant, and it is brilliant.

Although the firm considers that Nintendo had not prospered as much as other video software companies competitors such as Activision or EA in the last decade, the company is developing a digital transition that will put it at the forefront of the entertainment industry.

The note stated:

We believe Nintendo will be one of the largest digital media services in the world, in a category with the likes of Netflix, Disney+, Tencent Interactive Entertainment, and Apple Music.

Nintendo's future is bright, ValueAct added as the firm considers that the room for improvement in the entertainment and software business sectors is enormous.

According to sources, ValueAct has had several meetings with the Nintendo management, but it is not looking for a seat on the board. However, they are more focused on management and work with them behind the scenes.

That being said, Nintendo is one of the biggest bets taken by ValueAct after the announcement of a $1.2 billion investment in Citigroup, the United States bank conglomerate. Previously, the firm made a 7% stake in JSR Corp, the chip and display materials maker.

Nintendo Shares Analysis

Nintendo Daily Chart

Shares of Nintendo traded sharply higher on Tuesday following the news of the ValueAct stake. In Wall Street, NTDOY jumped from $52,46, the minimum since April 13, to trade as high as 55,92, its highest level in a year.

In the Tokyo stock market, Nintendo shares, 7974, closed 2.06% positive on Wednesday around ¥47,100, near the highs of December 10, 2019.

According to Mat Piscatella, a games industry analyst at The NPD Group, Nintendo is also benefiting from the social distancing measures taken due to the coronavirus pandemic. In addition, Mario Bros company topped software charts as "Animal Crossing: New Horizons" was the best selling game in March.

Whether together on the couch playing locally, or playing online, gaming has generated increased engagement, which has resulted in corresponding increases in consumer spend.

In that framework, Nintendo Switch units doubled in march 2020 in the United States after comparing with the same month in 2019.

Nintendo Switch set a new all-time record for hardware unit sales in a March month, beating the previous high set by Nintendo Switch in its March 2017 launch month.

Piscatella also tweeted that Nintendo performed better than its competitors PlayStation4 and Xbox One. While Nintendo Switch hardware spending grew more than double between March 2019 and 2020, the other two grew by more than 25%.

Technically, the Nintendo chart looks bullish, especially after the break above the $55.00 area. In the case that the unit is able to consolidate levels and close above that figure, it will make a case for bulls.

Next resistances are now at $56.00, 56.90, and 58.00 just before the eleven years high at $58.45. To the downside, the next support is at 53.20 and then the significant floor at 52.40.

Meet The Author
Mauricio Carrillo
Mauricio Carrillo
Senior Reporter

Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.

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