“It’s a me Mario”
– Super Mario
arvy’s teaser: Nintendo, the creator of countless childhood memories, is facing the challenge of a console hex. But with the huge success of the Super Mario Bros. movie, a new era is dawning. Nintendo breaks with tradition and ventures into films, merchandise and theme parks, leading to a potential flywheel effect. A “Good Story & Good Chart” is in the making.
Super Mario.
It seemed like yesterday that I was playing this superhero and collecting the power stars to save my first great love Princess Peach from the villain Bowser.
He was not the only character or fantasy world that accompanied me in my childhood. There were many more like Luigi, Pokémon, Zelda, Donkey Kong, Kirby, Yoshi or Animal Crossing (chart 1).
Today, it gives me even more pleasure that not only my six-year-old self has been able to enjoy these wonderful games and characters, but also the next generation, such as my four-year-old godchild, who is always happy to receive new Pokémon stuff from me. Of course, I also have my own intentions, because I can play children’s games again without being judged by anyone. Though I am pretty sure that if you watched me play Pokémon, you would be happy to swap places with me.
The creator of all these childhood memories is a Japanese electronics and gaming company.
The longest established and most successful business in the world in this sector.
Nintendo.
Chart 1: Nintendo Characters
Source: YouTube
Console Hex
Super Mario Bros. hit the scene in 1985, creating a lifetime of loyalty for Nintendo. For decades, it has taken a singular approach to business: making the best videogames possible.
This has frustrated me as a treasure trove of beloved characters is simply trapped in the consoles. That is owed to the conservative management of Nintendo about how it drives interest to its games.
Yet, the problem with the gaming industry is that conditions are somewhat challenging. And Nintendo is literally a prime example why – it is facing a console hex.
The corporation has followed a peculiar back-and-forth pattern from success to failure for the past two decades (chart 2):
- Huge success with Nintendo consoles (1991 & 1996)
- Poorly selling GameCube (2001)
- Megahit Wii (2006)
- Big drop off to the Wii U (2012)
- Flourishing Switch (2017)
Should this pattern continue, the next console will be a flop.
But the reason for this pattern is clear – it was due to the dramatic changes in each console that led to inconsistent performance. Now the Switch has become such a success that there is a clear path to developing a successor with improved technical capabilities without taking a huge creative risk.
And there is reason to believe that the next console cycle could do even more for Nintendo. Games are increasingly being bought digitally – still any GameStop HODL gang member around? – and more opportunities for paid updates and downloads as time goes on.
In simple terms, this means higher and more stable margins.
This could be a tipping point.
And that is not all.
Chart 2: Nintendo’s units sold (in millions) and US release date
Source: Nintendo, March 2023
Creating a Flywheel
Nintendo fans, myself included, have finally got their wish.
With its very first film, The Super Mario Bros. Movie, Nintendo has landed its first big hit outside the gaming industry. The film, which was released in cinemas at the beginning of April 2023, has grossed $1.4 bn worldwide, putting blockbusters such as Harry Potter and Lord of the Rings in the shade. This puts it in 17th place on Box Office Mojo’s list of top lifetime grosses (Chart 3).
The success of the Mario film is finally spurring management to take more risks.
Walt Disney acts as a role model, as the company has successfully created a flywheel effect where films generate interest in theme parks, which in turn generate interest in merchandise, which in turn generates interest in films.
Nintendo is now enthusiastically extending this commitment through films, merchandise (e.g. Lego cooperation) and theme park expansions.
The treasure chest of intellectual property is opened!
A “Good Story” is created and solidified.
And again, that is not all.
Chart 3: Box Office Mojo, Top 20 Lifetime Grosses
Source: Box Office Mojo
Cup with Handle
Nintendo is unrivalled when it comes to its outstanding brand, customer loyalty and decades-old franchises.
It is one of the few global intellectual properties that requires absolutely no education for most consumers. In contrast to Star Wars’ complex narratives and many characters, Mario’s cast is universally recognizable, needing no introduction. The brand portfolio is so strong and unique that Nintendo enjoys a wide moat, according to Morningstar.
Yet, I adhere to an important principle: I do not trust the story or the numbers unless they are confirmed by price action.
It is simple, over the long term, I believe that the market is the best-informed analyst and helps me discover investment opportunities that are validated by my analysis.
Thus, what is the “Good Chart” telling us?
Nintendo has been forming a proven chart pattern for a decade now – one of the most common that has consistently produced impressive gains – the Cup with Handle.
A “Good Story & Good Chart” is in the making.
We remain on our guard.
Chart 4: Nintendo over 20 years
Source: TradingView
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