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3 Reasons to Remain Bullish on Nintendo Co., Ltd (ADR) Stock

Tom Taulli

Just a few years ago, Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) looked doomed. The company’s console business was seemingly irrelevant, as it could not get an edge on rivals like Sony Corp (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT). The mobile category was also awful.

But of course, the company did not throw in the towel. Keep in mind that over the past year, NTDOY stock is up a sizzling 104%. The key driver has been the hugely successful Switch console. But there has been growth in the mobile business as well.

But when it comes to NTDOY stock, things can get dicey. Let’s face it, the company has a long history of erratic results.

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Yet, this time around could be different. For the most part, the company has made some moves that should provide for long-term growth for NTDOY stock.  So let’s take a look at three reasons to be bullish on Nintendo stock.

Advantage #1 for NTDOY Stock: The Switch Console

Switch is an example of how an innovative product can catch fire. The platform is essentially a blend of common technologies, such as a traditional console, tablet and handheld device.

The irony is that when it launched last year, it looked like a dud! But consumers quickly realized that the Switch was a must-have. Note that it is the fastest-growing launch ever of a console.

So as the user base quickly gets larger, there will be many opportunities. Major game developers like Electronic Arts Inc. (NASDAQ:EA) and Activision Blizzard, Inc. (NASDAQ:ATVI) will devote more resources to the platform, which will certainly make it richer. There is also the potential to get a piece of the streaming market, such as with Hulu and Netflix, Inc. (NASDAQ:NFLX).

It is also encouraging that Nintendo has continued to push innovation. For example, the company recently launched Labo, which involves a set of kits that include cardboard accessories. The items, which have sensors, are in the form of pianos, fishing rods and so on.

Yes, this allows for another immersive approach to gaming. According to Nintendo’s website: “With Nintendo Labo, building is just as much fun as playing. Have fun discovering how it all works — you might even invent new ways to play with each Toy-Con creation.”

Advantage #2 for NTDOY Stock: Mobile

Mobile is still a small part of Nintendo’s business (at about 5% of overall revenues). But it is showing lots of progress, as seen with titles like Super Mario Run and Fire Emblem Heroes. During the latest quarter, income from mobile and IP licensing spiked 426%.

While Nintendo has a strong portfolio of games it can migrate to mobile devices, the company is also working with third-party developers to expand its reach. There have been investments in operators like DeNA Co., which have resulted in successful games, such as Animal Crossing: Pocket Camp.

Monetization can be tough with mobile gaming. But for Nintendo, the company has the benefit of cross-promoting its Switch console. If anything, mobile games can ultimately be an effective marketing channel.

Advantage #3 for NTDOY Stock: Growth

As seen with its latest earnings report, Nintendo is very much back in the growth phase. Actually, it’s more like hyper-growth! During the latest quarter, the top line almost tripled. The company also boosted its full-year outlook by doubling its profit forecast to $1.06 billion.

No doubt, it’s all about the Switch. And there are few signs of any slowdown. Nintendo is predicting that by March the number of units sold will hit 14 million.

But for the long term, things really do look bright, and the Switch platform is likely to be massive. According to research from Credit Suisse Group AG (ADR) (NYSE:CS), the forecast for the user base is 130 million by 2022. If so, there should be growth for some time to come.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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