Latest / The Dutch Investors / #70 | Thoughts on Nintendo | The Switch 2, Pokémon & the Power of IP w/ Secret Sauce Investing

Transcript

#70 | Thoughts on Nintendo | The Switch 2, Pokémon & the Power of IP w/ Secret Sauce Investing · The Dutch Investors

0:18
SPEAKER_00: Well, Sonny, here we are again.
0:20
SPEAKER_00: A brand new company, a brand new day, and uh today it has a hint of Japanese attached to it.
0:29
SPEAKER_01: Yes, we're back, Sim.
0:31
SPEAKER_01: Uh really looking forward to this one.
0:32
SPEAKER_01: Today we're gonna cover Nintendo.
0:36
SPEAKER_00: Yeah, Nintendo has quite the year.
0:38
SPEAKER_00: It's up almost 24% this year.
0:40
SPEAKER_00: A couple years ago it was it was down like uh 30%, and like the narrative has switched, and apparently people are appreciating the Pokemon and the uh the Super Mario games again.
0:54
SPEAKER_00: The Switch 2 came out recently, so I think there's uh more than enough to cover.
1:00
SPEAKER_00: You're a Nintendo shareholder.
1:03
SPEAKER_00: For how long have you been a shareholder and uh and why?
1:07
SPEAKER_01: So I've been a Nintendo shareholder since 2021.
1:11
SPEAKER_01: Uh, and that was it was funny, an interesting time because obviously that was during peak COVID where lots of shares were were way up in in value.
1:19
SPEAKER_01: Um and I discovered have you have you heard of Ryan O'Connor at Crossroads Capital?
1:25
SPEAKER_00: I have not, no.
1:26
SPEAKER_01: He's he's maybe someday we can, you know, or you can certainly try and get on the podcast.
1:30
SPEAKER_01: Uh he I'd probably call him like the OG of the most up-to-date Nintendo thesis.
1:35
SPEAKER_01: And if anyone's really interested in this, um definitely have a look at he's released two quite big updates on Nintendo.
1:43
SPEAKER_01: I think one was the first one was 2017, and then one just following that.
1:47
SPEAKER_01: So he laid out this fantastic thesis of why Nintendo was undervalued, all of the underappreciated IP, and how Nintendo was effectively switching to the Apple model, which you know we talked a bit about last time.
2:00
SPEAKER_01: So for me, it made a lot of sense and the valuation made sense.
2:05
SPEAKER_01: So I decided to become a shareholder then, and obviously I've now held the share at the shares in the company for the past four years.
2:12
SPEAKER_00: So are you are you a gamer?
2:15
SPEAKER_00: Are you attached to Nintendo historically?
2:18
SPEAKER_00: Well, like when you grew up or uh with I don't know, Pokemon maybe.
2:24
SPEAKER_01: I've got I have got a Switch, and especially during COVID time, I played a lot of Zelda Breath of the Wild.
2:30
SPEAKER_01: I have not upgraded to the Switch 2.
2:33
SPEAKER_01: I do have a PlayStation 5, which might be a bit of sacrilegia for this conversation, but I do do love a bit of uh gaming now and again.
2:41
SPEAKER_01: What about yourself?
2:42
SPEAKER_01: Do you do you play anything?
2:44
SPEAKER_00: I would call myself a gamer historically.
2:47
SPEAKER_00: I I think I've played everything from GTA to Call of Duty to like uh The Last of Us to I don't know Spider-Man.
2:58
SPEAKER_00: But it's always been on either a PlayStation 1, 2, 3, 4, or 5 or an Xbox.
3:04
SPEAKER_00: Just about a year ago, my fiance decided to get a Nintendo Switch, so um we do have one in the home now.
3:13
SPEAKER_01: Well hopefully maybe a bit of uh more research for you can play some games after this podcast.
3:18
SPEAKER_00: From from what I can say so far is that the Switch is more of like a it feels more of like a family console where it's just lay back, play with your family, a couple games, maybe with your kids.
3:33
SPEAKER_00: There's there's a lot less competitiveness, it feels like.
3:36
SPEAKER_00: I don't know.
3:37
SPEAKER_00: It just feels more relaxed.
3:39
SPEAKER_01: Yeah.
3:40
SPEAKER_01: Um I do you have any um memories of Nintendo from when you were younger, sort of that you they cherish?
3:46
SPEAKER_00: Oh my god, hell yes.
3:48
SPEAKER_00: I mean, I used to be when I was like six to I don't know, ten maybe, the biggest Pokemon fan out there.
3:57
SPEAKER_00: I would wake up at like six in the morning, my parents would would call me crazy, and I would watch Pokemon and I would act like Pikachu all day long.
4:06
SPEAKER_00: It was uh I have very fond memories of Pokemon mostly.
4:11
SPEAKER_00: Yeah, that that's mostly it for me.
4:14
SPEAKER_00: I do, I mean, I've played some Super Mario games when I was a little older, but uh mostly Pokemon, yeah.
4:22
SPEAKER_00: How about you?
4:24
SPEAKER_01: Yeah, I I mean I always remember playing at friends' houses like the N64, playing uh Mario Kart, but there's definitely this memory I have where when we were younger, when Pokemon did come out, Pokemon Red and Pokemon Blue, uh I live in Edinburgh, and there's a town not too far, probably about an hour on the train called Sterling, and it's not too far, but when you're younger, you think an hour is a long time on the train.
4:46
SPEAKER_01: And Pokemon, all the games were sold out everywhere, you could not get them.
4:50
SPEAKER_01: And my mum took me and my brother through for the day, and we saw Pokemon in the shop, and she bought us the games.
4:56
SPEAKER_01: I got red, he got Pokemon Blue, and I just remember for hours, you know, for sitting on the platform in the train station and then on the train playing Pokemon, and that was it.
5:07
SPEAKER_01: So probably played played every Pokemon game for a good number of years after that.
5:11
SPEAKER_01: So, same.
5:12
SPEAKER_01: I'm just gonna read this.
5:13
SPEAKER_01: I thought this summed up Nintendo perfectly.
5:15
SPEAKER_01: I'm just I came across this in my research.
5:17
SPEAKER_01: This is Nintendo's mission, which is to create reasons to choose Nintendo for unique, family-friendly, and entertainment that puts smiles on the faces of everyone who touches.
5:26
SPEAKER_01: And I think, you know, we're reminiscent about Pokemon, and I think that sums up Nintendo pretty well.
5:30
SPEAKER_01: So I think that's a great way to start off the off the podcast.
5:34
SPEAKER_00: I mean, it's basically what I just said, without knowing the mission statement, it feels like a family gathering, it feels it feels fun.
5:42
SPEAKER_00: So I think they're uh accomplishing their mission so far.
5:45
SPEAKER_00: So let's jump into uh Nintendo.
5:49
SPEAKER_00: Maybe without getting into the history uh too much, because it has been covered by dozens of great podcasts already.
5:56
SPEAKER_00: Maybe just give us some background on how Nintendo got started and uh yeah, just what makes it unique today.
6:06
SPEAKER_01: So Nintendo is obviously a Japanese company.
6:09
SPEAKER_01: Um it was founded in 1889.
6:11
SPEAKER_01: It was founded with the manufacturing sale of forgive my pronunciation here, but Hanafunda playing cards.
6:18
SPEAKER_01: In about 1983, they released or start releasing the sort of first hardware in obviously the Game Boy, which everybody everybody is familiar with the Game Boy or sort of of our generation anyway, remembers it.
6:29
SPEAKER_01: Um, and you know, beyond that, they've continued to build around the digital IP.
6:35
SPEAKER_01: So, just as some sort of overview numbers, Nintendo sold about six billion video games over the course of its history and about 870 million hardware units globally.
6:45
SPEAKER_01: So that includes everything from the very first Game Boy right up until the Switch 2.
6:51
SPEAKER_01: And some of the largest franchises that Nintendo owns are obviously Mario, Donkey Kong, The Legends of Zelda, um, has a part share in or sort of almost majority ownership of Pokemon, and then we've got um the likes of Animal Crossing, Splatoon, and so on.
7:07
SPEAKER_01: So Nintendo's very much um a family-centric or family-focused games console, and it comes with a lot of its sort of first-party IP.
7:17
SPEAKER_01: So around 80% of Nintendo games are Nintendo IP, which will we'll certainly come on to competition and how that's uh that differs.
7:26
SPEAKER_01: But Nintendo is almost like, for me, it's like Disney meets Apple, or the perfect scenario is Disney meets Apple in the sense of they produce the hardware, but they also own the IP.
7:38
SPEAKER_00: I think that's uh that's a good comparison, although one could argue that Nintendo still has strides to go compared to like a Disney IP-wise, thinking about parks, thinking about uh a streaming service, uh stuff like that.
7:52
SPEAKER_00: But I think it makes sense.
7:55
SPEAKER_00: So, how does Nintendo make money mostly?
7:59
SPEAKER_00: What is like the most important thing they sell, and um what is most profitable from what they're selling, maybe?
8:07
SPEAKER_01: So the two main sections without we'll come on to a few others, but the two main sections where Nintendo makes money is in hardware and in software sales.
8:16
SPEAKER_01: So hardware is largely now the Switch 2, which launched earlier this year and retails for about$449 off the end of September.
8:25
SPEAKER_01: Switch 2 uh since launch had sold 10.36 million units.
8:30
SPEAKER_01: Nintendo then obviously has the games, which are called the software, and those come in as you could call them um digital, so customers can download those directly to Switch, which increases gross margin, or there obviously are physical copies as well, which probably appeal a lot more to a bit more nostalgia and collectors.
8:50
SPEAKER_01: So those are the two main ways in which Nintendo makes money.
8:54
SPEAKER_01: Now, the business has obviously has a cyclicality about it in regards to the fact that it has to release a console to continue that engagement and keep up with competitors to a certain extent.
9:07
SPEAKER_01: However, with that, it is the case that because it's releasing hardware, which is typically lower margins, what we're seeing just now is Nintendo will generate higher revenue, but lower margins.
9:19
SPEAKER_01: Whereas as more gamers and um more customers buy and adopt the Switch too, we'll start to see those margins increase again, especially as there is this cadence of uh releases of games and software for um for Nintendo.
9:34
SPEAKER_01: And beyond that, uh and we I think we'll maybe come on to these by themselves, or well, at least one of them, there is the Nintendo Switch Online, which is the online subscription, and then just beyond that, there's also IP and royalties and a bit of sort of mobile income as well, which are all relatively small, but you know, they they do make up part of Nintendo's income, uh, especially we've seen how successful the Mario movie was, and Nintendo did benefit from that.
10:01
SPEAKER_00: So talk us through the launch of the Switch 2.
10:04
SPEAKER_00: How has it been received?
10:06
SPEAKER_00: Is it selling better than the Switch 1?
10:08
SPEAKER_00: And what are some of the takeaways from the launch of the Switch 2 so far?
10:14
SPEAKER_01: So just before we jump into that, it's maybe important to give you some context or some background on how Nintendo operates and why they do that.
10:22
SPEAKER_01: So basically, the Switch 2 could hardly have gone better, the launch of it.
10:26
SPEAKER_01: Um if we reflect on the previous major successes that Nintendo's had, it was the Wii.
10:32
SPEAKER_01: And the Wii then had its successor in the Wii U.
10:36
SPEAKER_01: And this was a massive, massive stumbling block for Nintendo.
10:38
SPEAKER_01: They made a real mess of this.
10:40
SPEAKER_01: It was their worst ever selling console, and it was a misstep that basically left management terrified of cyclical downturns.
10:47
SPEAKER_01: So this has weighed on the share price uh for almost a decade, and it's led the business to sort of hoard piles of cash.
10:54
SPEAKER_01: As of obviously, the Switch was released in 2017 and it has gone on to sell over 154 million units with 1.3 billion games.
11:04
SPEAKER_01: So there was a lot of pressure on the Switch 2 to deliver because as we had seen with the uh the Wii, the successor stumbled, and I think there was a lot of fear for investors, you know, even if you just look at the historic share price, that the same could happen with the Switch 2.
11:22
SPEAKER_01: However, it did not.
11:23
SPEAKER_01: So as a as a shareholder, I was very happy because the Switch 2 launched in June this year.
11:29
SPEAKER_01: Um, and as I've talked about, we obviously had a retail price of about sort of$450 or£400, and has gone on to sell uh, as of sort of the latest update, has gone on to sell uh about just over 10.5 million units.
11:43
SPEAKER_01: Nintendo is a sort of notoriously conservative company, and it has given us a sort of forecast for the year, which they've increased to 19 million units.
11:54
SPEAKER_01: So there is optimism, and even I think shareholders who are less conservative than Nintendo will perhaps be a bit more ambitious around those numbers.
12:03
SPEAKER_01: Nintendo have uh also identified that they're on track to sell around 40 million software units or games, and I think it's really interesting because obviously they've had bundles, they've had the likes of Mario Kart uh bundled with the console when it was released.
12:18
SPEAKER_01: They've also had success with the likes of uh Donkey Kong, Donkey Kong Bonanza, and then beyond that, where Nintendo have hopefully benefit or will you know benefit as well going forward is the Switch 2 is backwards compatible.
12:30
SPEAKER_01: So, you know, that's a that's a really great ad for users and customers because historically a lot of Nintendo consoles were not backwards compatible.
12:40
SPEAKER_01: So if you had a Switch and you had your your saved games and you'd spent a lot of time building up to those, it always could have been the case in the future that you couldn't have ported those over to the new console.
12:49
SPEAKER_01: But in this scenario, you too, uh you can.
12:52
SPEAKER_01: The Switch 2 also uh coincides with Nintendo having about 100 million active users, so there is there is a little bit still a demand for the Switch, the original one, um, but that obviously as it enters its ninth year, we're starting to see sort of year-on-line, like year-on-year decline.
13:09
SPEAKER_01: So I think as a as a shareholder, I would sort of say maybe be cautiously optimistic, but I'd say it couldn't have gone much better.
13:18
SPEAKER_00: I've always wondered if if there is a place for Nintendo in between like all the gaming consoles we have, it feels a bit different from PC gaming and um console gaming on like a a PlayStation or an Xbox.
13:38
SPEAKER_00: I feel like those three compete with each other in a sense.
13:43
SPEAKER_01: So I think um as a shareholder, obviously, I was I was concerned because if you think back to the the PlayStation, you know, it was released the first PlayStation 5 was released about four years ago now, and we're almost halfway through that cycle where the next PlayStation, which you know, PlayStation still dominates the gaming gaming market, and it is the scenario that probably 2027 we're going to see the PlayStation 6 come out.
14:06
SPEAKER_01: So Nintendo's almost four years behind by the time it's even launched, the Switch 2, which is obviously has has less power than than the PS5, and obviously when the PS6 and obviously the next Xbox comes out, or it's obviously got the Series X just now, it's behind both in sort of graphic fidelity or processing power.
14:26
SPEAKER_01: But what I would you know where where I would um maybe point my flag in the ground is the fact that Nintendo does a couple of things right in comparison to competition, and you know, first of all, it's got that convenience of being portable.
14:40
SPEAKER_01: That doesn't obviously it's not um something that the PS5 or or Series X offers.
14:45
SPEAKER_01: And again, yeah, it totally I take up we you know take on board that the console does fall short in terms of performance or sheer power, but it excels in sort of convenience and generally sort of customer experience when it comes to and I mean listen, it's certainly just about to come into this, but when it comes to those those elements, Nintendo, you know, as we've already touched on with their sort of mission statement, it's all about fun and it's sort of family-friendly fun, and that is what Nintendo's about.
15:10
SPEAKER_01: It's about the 80% of the first party games that re they release.
15:14
SPEAKER_01: They're they're Nintendo IP, and it's about putting smiles on people's faces.
15:18
SPEAKER_01: Whereas on the you know, on the the PS5, you might be sort of killing zombies or soldiers, but on the Switch and sort of Switch 2 as well, it's about having fun with you could have a dad and their their child both playing on the Switch at the same time.
15:35
SPEAKER_01: So I think that's that's Nintendo has almost carved out its own niche in comparison to competition.
15:42
SPEAKER_00: Yeah, and you know, you remember the Sony PSP.
15:46
SPEAKER_01: Yeah.
15:47
SPEAKER_00: You know, Sony stopped the PSP uh due to competition from like smartphone mobile gaming, and also piracy rates was a was a thing.
15:57
SPEAKER_00: It sort of shows how difficult it is, I guess, to stay relevant in this market.
16:03
SPEAKER_00: And I think Nintendo would have felt wasn't it for like the unique IP they have.
16:10
SPEAKER_00: It's not hard to to imagine these games being playable on like a mobile phone in uh in a couple years.
16:19
SPEAKER_00: I mean, uh the development of phones is going very fast, and uh that might be a risk to consider, I suppose.
16:29
SPEAKER_00: But you know, they have this mode in IP that is uh very, very good.
16:36
SPEAKER_00: It's arguably one of the best intellectual property content bases out there.
16:43
SPEAKER_01: And I think with the Switch and especially the Switch 2 now, what we're starting to see is Nintendo's starting to get it, and you know, things that they should have maybe been incorporating years or even decades ago.
16:54
SPEAKER_01: So their annual playing numbers, as of sort of the most recent report, are about 128 million users who have played the Switch or played their Switch console at least one point in the last 12 months.
17:06
SPEAKER_01: So that remains over 100 million, which is great.
17:09
SPEAKER_01: They've got sort of 100 million active accounts you're calling it, and then they've got 34 million Nintendo Switch online accounts, and these are active subscribers who are paying um as you know as a as an upgrade or sort of an upsell on on the Switch.
17:22
SPEAKER_01: So there's those two elements as well, which I think we've got to remember, you know, we it's funny because I think I see like a this recurring pattern or recurring theme in a lot of our podcasts, um, you know, whether it be like Games Workshop or even parts of like LVMH, that with Nintendo it is the case that it's it's got this ecosystem strength because you've got these customers who are sticky to it, it's got first party IP, and then beyond that, they control the hardware as well, which you're not really they've almost got not totally, but they've almost got that full stack user experience, like from right from the hardware to the IP that is appearing on the customer's screen.
18:01
SPEAKER_01: Nintendo owns that, and then and they're building this ecosystem out.
18:04
SPEAKER_01: So actually, I think where the real bull case for Nintendo is continue to scale this.
18:09
SPEAKER_01: And I think to your earlier point, you're you're maybe um a bit cynical about maybe if I'm correct me if I'm wrong here, but the fact that Nintendo doesn't have a sort of a larger addressable market.
18:19
SPEAKER_01: That's is that correct?
18:20
SPEAKER_01: I'm just correct in saying that.
18:22
SPEAKER_00: Yeah, I just don't know the how how how how much more growth is available, yeah.
18:28
SPEAKER_01: So I think but with that, where Nintendo can lead into is is that ecosystem.
18:33
SPEAKER_01: And we'll come on to this in a second, but obviously a lot of PlayStation and Xbox's revenue is now gonna be derived from their online ecosystems.
18:41
SPEAKER_01: Nintendo still has a lot of growth opportunity there.
18:44
SPEAKER_00: So, how about you take us through the competitive landscape and talk about some of uh Nintendo's biggest competitors and maybe their differences?
18:56
SPEAKER_01: So, as we've already touched on, PlayStation and Xbox, and then um an element of sort of computer gaming, they're the biggest competitors for Nintendo, and perhaps a sort of secondary point that you've just mentioned is obviously mobile.
19:08
SPEAKER_01: So, with that, PlayStation still remains the global console leader with about 45% market share.
19:15
SPEAKER_01: However, Nintendo has 27%, and as we touched on, um you know it's it certainly sits in a good position that is the second biggest uh or has the second largest market share.
19:27
SPEAKER_01: If we look at PlayStation Plus, I think what was an interesting number when I was doing my research for this is the fact that they're so if we consider Nintendo, who's sitting on about 34 million Nintendo Switch on Switch Online accounts, PlayStation is estimated to be sitting on about 51 million subscribers across all tiers.
19:45
SPEAKER_01: But because the PlayStation service has a higher cost, it means that the PlayStation generates about 5 billion in annual revenues from online subscribers.
19:55
SPEAKER_01: Whereas Nintendo's generating about 600 million, which in comparison is just this tiny amount.
20:01
SPEAKER_01: Um, you know, as as a as a business, again, that's why I'm optimistic about Nintendo can lean into that further.
20:07
SPEAKER_01: However, back to your earlier point, on the sort of NSO or the Nintendo Switch Online account, it it maybe doesn't feel like you're getting the same, you know, you're you're not getting this your your money's worth in comparison to PlayStation.
20:20
SPEAKER_01: So yeah, I think we can we can you know talk about this a bit more.
20:24
SPEAKER_01: One thing I I certainly want to uh draw your attention to as well, same, is the fact that recently, um just just so I I think let me just get my date, but PlayStation basically released a Japan only console um at discounted rate, and that was so it was reported yeah, November 2025.
20:41
SPEAKER_01: Basically, PlayStation released uh uh 50,000 yen um console, so it's about$320 in a Japan only um market, and this was allegedly because Nintendo had exploding market share in the region because of the release of the Switch, which again you know it's fantastic for Nintendo shareholders.
21:01
SPEAKER_01: I do think it's interesting as well that from doing my research, it seemed to be the case that both PlayStation and Xbox they are actually they they lose money on the hardware, it's not been definitively reported, but Nintendo on the Switch seems to have always made margin.
21:19
SPEAKER_01: Again, it seems to be the case, it has been reported that the Switch 2 is making less margin, but Nintendo's never been a loss leader when it comes to hardware.
21:29
SPEAKER_00: Yeah, and to your earlier point, it does feel like the Switch can live together with the other consoles, but I don't think like it doesn't make sense to own a PlayStation and an Xbox, unless you have kids and I don't know.
21:50
SPEAKER_00: But I would never buy an Xbox and a PlayStation, but I do have a PlayStation and a Switch because I think Nintendo.
22:00
SPEAKER_00: Know is sort of operating in like this niche, not in high-end gaming, but more in casual family gathering types of games, and I think it's doing really well.
22:13
SPEAKER_00: And the IP is their absolute crown jewel.
22:19
SPEAKER_00: They can license their IP, uh, they can earn royalties, which is basically a hundred percent margin, they don't have to do anything for that.
22:28
SPEAKER_00: And if they don't want to license the IP, they keep it to themselves in their own hardware, in their own ecosystem, which means you need to get a Nintendo Switch.
22:40
SPEAKER_01: Yeah, and if we if we consider the fact that obviously, so if you consider PlayStation and Xbox, they're relying on third-party developers to put out strong games.
22:49
SPEAKER_01: Whereas it's a double-edged sword because obviously Nintendo's relying on itself to put out strong titles, but in the same respect, if it puts out weak titles, then obviously software and game sales are going to suffer.
23:03
SPEAKER_00: So, is there anything else about the industry that is worth sharing?
23:08
SPEAKER_01: I mean, listen, you can't get through a podcast nowadays without mentioning IP and uh AI integration.
23:14
SPEAKER_01: So uh I'm I'm not totally sure.
23:17
SPEAKER_01: I think what if you if you consider Microsoft, obviously they're strongly linked to Open AI, they are the owners of Xbox.
23:25
SPEAKER_01: Will the will the sort of future PlayStations and Xboxes based on their sort of processing power lend themselves better to AI integration?
23:33
SPEAKER_01: It's a probably has a question mark around it.
23:36
SPEAKER_01: However, I'm pretty confident that because of sort of um Nintendo's effectively weaker hardware, it's not going to move in that direction.
23:45
SPEAKER_01: So will that ultimately continue to sort of move towards this divide in sort of power and processing power that the competitors have?
23:54
SPEAKER_01: I'm not totally sure, but that's that's certainly one thing to be keep an eye on.
23:59
SPEAKER_00: So we have already touched on like the competitive advantage.
24:02
SPEAKER_00: We talked about the IP being a very strong competitive advantage, almost impossible to replicate.
24:10
SPEAKER_00: Impossible to replicate.
24:12
SPEAKER_00: There's only one Pokemon, there's only one Zelda.
24:14
SPEAKER_00: It's it's already been done.
24:15
SPEAKER_00: We also touched on the ecosystem where the IP is integrated into the software and into the hardware of Nintendo.
24:25
SPEAKER_00: How strong do you think Nintendo's brand really is?
24:29
SPEAKER_00: Is there a company that comes close?
24:32
SPEAKER_01: So I think we we you know, if we take a step back from just the consoles and and the games, probably the the best examples of we've already mentioned them is Disney.
24:40
SPEAKER_01: You know, I think Nintendo is a pretty close second to having the best IP in the world uh behind Disney.
24:47
SPEAKER_01: Um I think where they've really struggled historically is they've really struggled to unlock the IP.
24:52
SPEAKER_01: And they've been terrified.
24:54
SPEAKER_01: I think there's the um there's the terrible Mario movie that was released in the early 90s.
24:58
SPEAKER_01: I don't know if you came across this in your research at all.
25:00
SPEAKER_01: Um so I think since then Nintendo have really been terrified of almost giving out their IP or or partnering with anyone.
25:08
SPEAKER_01: But the best example we've seen recently has been obviously the Super Mario movie, which was released in 2023.
25:16
SPEAKER_01: So this was a partnership with Illumination, who are the studio behind Despicable Me.
25:21
SPEAKER_01: The movie generated about 1.3 billion globally.
25:25
SPEAKER_01: So$1.3 billion globally, which again there was obviously this fear among shareholders, you know, if if the movie was a flop, does that is that reflective of Nintendo's IP?
25:35
SPEAKER_01: And yes, I think it's sort of been reported that because Nintendo uh financed about 50% of the movie, they probably recorded about$275 million in profit.
25:45
SPEAKER_01: But actually, that wasn't the important element of the the money, it was obviously a nice to have, but the fact is Nintendo have obviously introduced a new generation to their IP.
25:57
SPEAKER_01: So this is going to be followed by the next Super Mario movie in 2026, which will be that will be the Super Mario Galaxy movie.
26:03
SPEAKER_01: There is going to be a live-action Legend of Zelda.
26:06
SPEAKER_01: It'll be interesting to see how that plays out, and then there's already a rumour that Donkey Kong is in the works.
26:12
SPEAKER_01: So that in itself is there's comparisons to be drawn there between um Nintendo and Disney because of the fact that obviously Disney is so prominent when it comes to movies, and in addition as well, Nintendo uh also has parks or sort of partnerships with with Universal.
26:29
SPEAKER_01: So as of 20 uh May 2025, they opened a sort of another physical presence in Universal Orlando with uh part of the Universal Park with Nintendo, again reflective of Disney.
26:41
SPEAKER_01: So it's almost like they're borrowing parts from the Disney playbook here, where you know obviously they're so reliant on drawing in so much of the IP to the ecosystem to buy hardware, buy software, but they're introducing uh a lot of a new generation through um through movies, but also through potential parks.
27:02
SPEAKER_01: And then just beyond that as well, it's something you know, something again a bit a little bit reminiscent of Apple is the fact they are bringing out their sort of direct stores.
27:11
SPEAKER_01: They just opened one in May in San Francisco, uh, they've got four in in Japan and two in the US.
27:17
SPEAKER_01: So they are conservative, they're a conservative company, and we'll come on to that, but they are moving in the right direction.
27:25
SPEAKER_01: You know, they're not like a Disney who's who are gonna have a movie out once a month and they're not gonna be releasing or having you know however many stores opening up, probably just haven't have not got the demand there, but they are starting to move in the right direction and unlock a lot of their IP in the right way.
27:41
SPEAKER_00: Yeah, during our research on Games Workshop, this was pretty similar where they are still searching for ways to really let their IP shine, especially in like this digital age, which can be quite difficult, I guess, which is pretty interesting to see in such a large company as well.
28:03
SPEAKER_00: You know, from our research, analyzing Shimano and uh the Japanese bike maker and Japan railway company, and talking to investors familiar with investing in Japan, it feels a bit like a culture thing.
28:17
SPEAKER_00: They're a lot more conservative compared to Americans.
28:21
SPEAKER_00: They like having lots of cash on their balance sheet, playing it safe, which means these companies can feel pretty safe, but their lack of taking chances, innovating, and taking risks also limits their returns and opportunities.
28:38
SPEAKER_00: They can fall behind, maybe.
28:40
SPEAKER_00: Do you think this applies to Nintendo as well, or are they different here?
28:46
SPEAKER_01: I think you've you've hit the nail on the head when it comes to Nintendo's approach.
28:50
SPEAKER_01: Now, I've not covered any other Japanese companies in my research, but it does seem to be the case that with Nintendo, I've not noticed massive changes in their in their balance sheet.
28:59
SPEAKER_01: I would just assume that if they're going through this hardware cycle, when they're moving towards launching this new hardware, cash and equivalence should be down.
29:08
SPEAKER_01: But actually, cash and equivalents are sort of where they were in the last couple of years and it haven't really moved.
29:13
SPEAKER_01: Now, Nintendo's sitting with no debt, it's got 13 billion in sort of cash and equivalence on the balance sheet, and it gives it again um strategic flexibility.
29:23
SPEAKER_01: So, should they ever encounter this this cyclical um downturn because they release a poor console, it allows the company to survive.
29:31
SPEAKER_01: And let's let's not take away that Nintendo is about, I think it's about 137 years old, so it has been around a long time, and management is obviously thinking in decades, not in years.
29:41
SPEAKER_01: So there's pros and cons again, sort of another double-edged sword where we look at a lot of US-based companies and they invest heavily, and it for the last couple of decades has largely paid off.
29:53
SPEAKER_01: Whereas Nintendo is it's not making these big bets, and as a shareholder, I'm I'm delighted with what I'm seeing, but when you're sitting with 13 billion on the balance sheet and no debt, it's just like is there not a better use um of cap or of your capital?
30:12
SPEAKER_01: So for me, I I'd like to see them do more, and I think we'll sort of come into that as we as we wind things up later on.
30:19
SPEAKER_01: But yeah, it's just it's an interesting culture, and I did see maybe you can um offer some input here because of uh your your sort of research on Japan, but I had um noticed this was about 2023, I put a write-up in uh out on Nintendo, and I think it was sort of to you know, it was obviously a lot of conservatism around Japan as has been linked to the 1990s stock crash, and for a long time the um Tokyo Stock Exchange just I I've not got the exact data, but it was decades before it even returned to that the peak of 1990s.
30:54
SPEAKER_01: Um so I think it it is the case now.
30:57
SPEAKER_01: There is new rules coming out where um the price-to-book ratio was effectively had had to show improvement.
31:04
SPEAKER_01: So I've I've actually I've found a little bit of uh a little bit of insight here.
31:07
SPEAKER_01: This was from my my 2023 um research.
31:10
SPEAKER_01: But what it was was the fact that a lot of about half of the listed companies on the Tokyo Stock Exchange, they had um sort of price-to-book ratios under one.
31:21
SPEAKER_01: And what the what the government were trying to do is is force a bit of a cultural shift to demonstrate it was no longer acceptable to build cash and avoid investment.
31:30
SPEAKER_01: So some some Japanese companies were were sort of announcing buyback plans, and and I think Nintendo are relatively good at this.
31:35
SPEAKER_01: And again, you know, a lot of cross-sholding in Japan is quite common, so companies will take small stakes and customers and suppliers as or gestures of goodwill.
31:45
SPEAKER_01: So they're trying to reduce this down.
31:46
SPEAKER_01: And again, not totally sure it's the right approach, but it could be in the future, but just make companies like Nintendo a little bit more aggressive in the bets they're taking.
31:57
SPEAKER_00: Yeah, I think that would be a good incentive to at least incentivize the companies to take a little more chances and risks, and uh while still being quite conservative.
32:09
SPEAKER_00: Before we jump into the some of the numbers, we cannot skip the gem, the diamond within the IP Pokemon.
32:19
SPEAKER_00: What does it mean for Nintendo Pokemon?
32:22
SPEAKER_01: So Pokemon is almost the staple.
32:26
SPEAKER_01: That's how I see it.
32:27
SPEAKER_01: It's like the linchpin of Nintendo.
32:29
SPEAKER_01: And Pokemon is something that again we talked a lot about Disney, but it's arguably arguably the best IP in the world if you maybe consider just a single brand or sort of single franchise.
32:42
SPEAKER_01: So the the number that's estimated is that since Pokemon was founded in 1996, it's had lifetime revenue of anywhere between sort of 90 to a billion dollars across all of the IP releases and sort of licensed goods.
32:56
SPEAKER_01: Pokemon is not actually owned by Nintendo, maybe a misconception, but it's jointly owned by three companies, which are Nintendo, Game Freak, and Creatures Inc.
33:04
SPEAKER_01: So Game Freak, they're the studio that serve as the creators and obviously the mainline games.
33:10
SPEAKER_01: Nintendo also holds a sort of minor a minority share in creatures, so this gives them additional leverage.
33:16
SPEAKER_01: In the last 29 years, we talked about the first the red and blue Pokemon games, but Nintendo's released about 11 major games, and it's it's just something that customers will continue to come back for year after year.
33:31
SPEAKER_01: The release of a new Pokemon game is effectively, you know, it's an event, and it a single Pokemon game can generate anywhere between sort of one and two billion dollars in gross revenue with development costs rumored to be less than 100 million.
33:46
SPEAKER_01: What's your takeaway on Pokemon Zeam?
33:48
SPEAKER_01: How how do you sort of remember it and what's your feeling with how Nintendo are currently using Pokemon?
33:55
SPEAKER_00: It's um such a unique piece of intellectual property.
34:00
SPEAKER_00: From what I found, they sold over 28 billion trading cards, sold over 480 million games.
34:08
SPEAKER_00: Pokemon Go was a massive success.
34:11
SPEAKER_00: The transition to digital.
34:29
SPEAKER_00: It was uh a massive success.
34:32
SPEAKER_00: There is a massive demand for these cards still, and not only cards, also just plushies or uh certain Pokemon gear.
34:44
SPEAKER_00: Is that still the case 50 years from now?
34:48
SPEAKER_00: I don't know.
34:49
SPEAKER_00: That will be when our generation, the Pokemon generation, gets a little older, but that will be a transition for them.
34:57
SPEAKER_00: But until then, I mean, there is so much, so much more Pokemon room to grow.
35:02
SPEAKER_00: It's uh incredible.
35:03
SPEAKER_00: And I love Pokemon, I still love Pokemon, it still gives me a good feeling when thinking about it.
35:09
SPEAKER_00: I mean, the original cartoon with Ash catch him, I mean legendary.
35:15
SPEAKER_01: I used to watch it before I went to school in the morning, and then you'd go in and you would trade your Pokemon cards, and then you would play play your Pokemon games on your Game Boy, and it was just everything.
35:26
SPEAKER_00: It was the best time.
35:28
SPEAKER_00: Gotta catch him all.
35:29
SPEAKER_01: Yes.
35:30
SPEAKER_01: Maybe drop that one in the notice.
35:32
SPEAKER_01: Link to the so good.
35:36
SPEAKER_01: Yeah.
35:36
SPEAKER_01: I mean, Pokemon, um, obviously you've you've touched on Pokemon Go there, which just got these great headwinds for the pandemic and it got people outside.
35:44
SPEAKER_01: And obviously, uh what was really interesting, I don't know if you ever remember this, but when Pokemon Go was released, it wasn't actually produced by Nintendo, it was produced by uh Niantic or Niantic, uh, which Nintendo was actually an investor, but um with Pokemon Go, because it was so successful and sort of had this crazy success, um Nintendo's shares actually went up despite them earning next to no money from Pokemon Go.
36:08
SPEAKER_01: However, there it was the scenario that there was a bit of a flywheel effect because it was driving awareness off Pokemon, the Pokemon brands.
36:16
SPEAKER_01: So, yeah, I'm I'm gonna um bring out one final point though around Pokemon.
36:21
SPEAKER_01: It's it's maybe a bit of a bear point, and I think we can we'll come on to this later as well with with how Nintendo operates.
36:27
SPEAKER_01: But we're looking, you know, we're on the verge of seeing GTA 6 come out at some point next year, late, late next year, and GTA 6 probably gonna be the most unprecedented game release in in history.
36:42
SPEAKER_01: With Pokemon, it is a it is a staple of Nintendo gamers.
36:47
SPEAKER_01: So Switch gamers, that is the pretty much the one thing that that draws them in is Pokemon.
36:53
SPEAKER_01: I think what fans and and customers have been asking for for so long is something that just creates a you know uh MMO, so like a massive multiplayer online game that takes elements, I suppose, off of Pokemon Goal and brings it to the console.
37:12
SPEAKER_01: Customers want something that blows them away, that you know it could be a generational game.
37:18
SPEAKER_01: But how Nintendo operates and how the Pokemon company operate is obviously they're so conservative that effectively, yes, they're they're generating sort of maximum yen for not a lot of return, but they're unwilling again, you know, look at the look at the cash in the balance sheet, they're unwilling to take these big swings, and IP like Pokemon suffers because of that.
37:41
SPEAKER_00: This was the main concern when analyzing these other Japanese companies.
37:46
SPEAKER_00: I think this would be a good bridge to the financials because the capital allocation for these companies is so conservative that they are highly profitable and they will be for a couple years.
37:59
SPEAKER_00: But what about the future of let's say Nintendo 10 years from now, 20, 50 years from now?
38:07
SPEAKER_00: From what I remember, Shimano's market cap was 30 or 40% cash.
38:13
SPEAKER_00: That they are still not, you know, using the cash to transition into e-bikes enough, they are falling behind on companies like Bosch in Europe.
38:27
SPEAKER_00: I feel like Nintendo is from what I found so far, also they gotta take some chances somewhere, I feel like.
38:38
SPEAKER_00: And only relying on the cash cows until they are no longer a cash cow is a dangerous game they're playing.
38:47
SPEAKER_00: What's your gut feeling on capital allocation?
38:50
SPEAKER_01: Yeah, I would totally agree.
38:52
SPEAKER_01: So I think if we if we reflect on that, and probably a lot of people listening to this podcast, we all see ourselves as value investors, and we're always like, ah, there's a margin of safety.
39:02
SPEAKER_01: And with Japanese companies, you think, ah, great, there's this margin of safety, but they've got cash in the balance sheet where they can in the future invest and deliver future value.
39:11
SPEAKER_01: But it is the case that someone like Nintendo, and again the sort of Japanese companies you're referring to, it doesn't have the same margin of safety that you consider with say a US-based company, because someone like Nintendo, yes, they've got cash in a balance sheet, but they're unwilling to spend it.
39:29
SPEAKER_01: So it actually doesn't have the same impact.
39:32
SPEAKER_01: And you're totally right, what does the future look like?
39:35
SPEAKER_01: At some point, the switch has been obviously really well received, but at some point in the future, there will be another console slip, and that will impact share price, revenue, and everything else that comes with it.
39:48
SPEAKER_01: And yes, they'll have the cash there to survive.
39:51
SPEAKER_01: But at this point, when the going is good, for me, this is the point where Nintendo should make those investments.
39:57
SPEAKER_01: So if we just consider Nintendo, as I've touched on already, they're sitting um on around so they've not got any debt, they're sitting on uh around 13 billion in in cash and equivalence, so it's just about 10 billion or sorry, 11 billion dollars, um, and then in fact it takes up to about 14 billion in cash and securities.
40:18
SPEAKER_01: So again, fantastic margin of safety, but as a business, their a lot of their cash are goes into buybacks and dividends, they're not investing heavily in the likes of RD like we would see in US-based companies.
40:34
SPEAKER_00: And this can be a big danger to investors.
40:38
SPEAKER_00: I think um the valuation currently reflects at least some future growth, and the fact that they're not really investing in RD could mean that you know a multiple compression eventually halves the share price.
40:57
SPEAKER_00: Could be could be a risk for shareholders getting in on the current valuation, they need to get at least some growth.
41:04
SPEAKER_00: I believe the PE is around 30.
41:07
SPEAKER_00: Yeah, definitely something to consider.
41:09
SPEAKER_00: So for investors looking into Nintendo, maybe we have shareholders listening.
41:16
SPEAKER_00: What sort of KPIs do you personally track for Nintendo?
41:21
SPEAKER_01: So I think what's really important, we need to track obviously console sales, because ultimately, you know, if without future console sales, you're not bringing new gamers online.
41:30
SPEAKER_01: So that will be important.
41:31
SPEAKER_01: We need to look at the number, you know, software, so games sold as well.
41:36
SPEAKER_01: And then I think what's important as well going forward will be the margins and how those change over time, because if the switch to does have higher costs associated with it, it will be interesting to understand at what point does Nintendo um generate higher margins again, linked more to the software than effectively the hardware, because that's that's the point we're in where we've only sold we've only sold as a company 10 million units of hardware.
42:01
SPEAKER_01: The switch was 150, so 15 times that.
42:04
SPEAKER_01: So there's still a lot of runway to go before they get anywhere close to that, and obviously there could be several years.
42:10
SPEAKER_01: So I think it's really important over the over the next 12 months to follow Nintendo's margins, see how those improve again as they as they sell more software over hardware.
42:20
SPEAKER_00: You touched on GTA 6 a couple minutes ago.
42:25
SPEAKER_00: I can imagine a world where I think GTA 6 is going to be so immersive.
42:31
SPEAKER_00: I think you can earn like money within the digital economy.
42:36
SPEAKER_00: What if like Nintendo invests a little in GTA 6 and opens their own Pokemon stores within GTA 6 and you can buy like Pokemon cards within GTA 6 with real money and they earn royalties?
42:49
SPEAKER_00: Just uh something I thought of.
42:52
SPEAKER_00: That would be very cool.
42:54
SPEAKER_01: Well, as a shareholder, I would like to see them make bigger bets.
42:57
SPEAKER_01: I mean, where I will come back to GTA 6 in a minute because I think if you're any sort of gamer whatsoever, you're going to be excited about that.
43:04
SPEAKER_01: But when it comes to making those bets, what I would actually link it closer to is something like Disney's bets during Bob Iger's tenure.
43:13
SPEAKER_01: So if you consider the acquisitions of Star Wars, Marvel, the Fox Library, a lot of these were plug-in and play IP.
43:21
SPEAKER_01: And yes, they're maybe milking them now, but they were fantastic acquisitions and have allowed Disney to become what they are today.
43:29
SPEAKER_01: Nintendo has done a great job with its own IP, but I would love to see them acquire some plug-in and play IP, if you want to call it that, that's perhaps undervalued elsewhere, and Nintendo can do what it does, unlock that IP on its platform, and it gives users more software opportunities in the future.
43:47
SPEAKER_01: That's for me that that's where I'd like to see them going.
43:50
SPEAKER_01: Um what's what's your thoughts on that?
43:53
SPEAKER_00: Yeah, not nothing really to add.
43:55
SPEAKER_00: I I think I uh would agree, and I think this would be a great section to to talk.
44:00
SPEAKER_00: About the risks and opportunities for a company like Nintendo.
44:03
SPEAKER_00: We touched on hoarding cash as an increasing risk, the risk of not investing early enough in RD, not staying ahead of competition, not staying, not innovating on IP.
44:18
SPEAKER_00: The other risk we touched on would be like a decline in console sales, which you touched on in the KPIs.
44:25
SPEAKER_00: So what other risks are you looking out for?
44:28
SPEAKER_01: So I think first and foremost, we've seen the success, the initial success in a way of the Switch 2.
44:33
SPEAKER_01: We need to be very mindful of that and understand: is that momentum going to continue?
44:37
SPEAKER_01: Because it's had a lot of enthusiasm and adoption from early fans, but there's no guarantee that automatically continues.
44:44
SPEAKER_01: And what could make that stall is going to be software.
44:48
SPEAKER_01: Yes, you know, people have been excited, but if the games that come out are not as widely adopted or as enjoyable, obviously that's going to lead to a downturn and uh downturn in console sales.
44:59
SPEAKER_01: So the Switch one set this huge bar for customers.
45:03
SPEAKER_01: In addition to that as well, we need to be mindful of Nintendo moving towards what we talked about competitive competition, like the PlayStation and things in the prices typically is the fact that Nintendo, the Switch, used to always be cheaper than the PlayStation or the Xbox, and that's why you and I both have a PlayStation and a Switch in our households.
45:20
SPEAKER_01: But the Switch too, and a lot of the new software and the downloadable content is actually much more in line with the PlayStation and Xbox.
45:31
SPEAKER_01: So is the is the console, you know, there's there's two elements there.
45:36
SPEAKER_01: Is the console moving towards competing more directly?
45:39
SPEAKER_01: And then obviously there's the risk that sort of these two console households fall away and just opt for a PlayStation instead.
45:47
SPEAKER_01: And then there's obviously going to be frustration from customers based on the fact that if you consider Pokemon Legends, once the you sort of add on the DLC pack and the original game, you're looking at$100 for an experience.
46:01
SPEAKER_01: And that to me isn't that's that's no longer family-friendly entertainment.
46:06
SPEAKER_01: That's quite expensive when you consider$100 for for a single game, regardless of if it's Pokemon or not.
46:11
SPEAKER_01: And then lastly, as well, is just obviously the adoption and adaption of big games.
46:17
SPEAKER_01: So let's let's briefly cover GTA 6.
46:21
SPEAKER_01: So this was in my in my research.
46:23
SPEAKER_01: GTA 5, so Grand Theft Aut 5 has generated about um 8 billion in revenue with uh more than two 200 million copies sold as of 2025.
46:34
SPEAKER_01: A lot of this income has been generated by Grand Theft Auto Online, where I think you're totally right, there's gonna be this immersive experience with with GTA 6.
46:44
SPEAKER_01: If we reflect on that investment, you're looking at um about 6,000 to 7,500 developers reported to be contributing to product to the to the project, where their costs all in are going to be anywhere up to 2 billion.
46:59
SPEAKER_01: And there's a lot of expectations that the new GTA 6 will exceed$10 billion in lifetime revenue.
47:07
SPEAKER_01: Now, in fact, that could even be conservative.
47:10
SPEAKER_01: So for me, if you think, well, first, GTA 6 is very unlikely to be on the switch for a long time, if if at all.
47:19
SPEAKER_01: And in addition to that as well, it's like you look at that investment and you look at again, there's no guarantee GTA 6 is going to be a success, but I'm I'm fairly confident it will be based on their track history.
47:31
SPEAKER_01: If you consider that with the Switch, I would like to see that level of investment around real signature games that are going to draw in customers where Nintendo has this great lock-in, they own the first party IP.
47:44
SPEAKER_01: If you can make that that generation defining game, customers are going to buy the console to buy into that game.
47:52
SPEAKER_01: And that's not what we're seeing with the company.
47:54
SPEAKER_01: You know, I think that's a real risk in for the company and shareholders.
47:58
SPEAKER_00: Talking about opportunities, the first opportunity you just mentioned is hopefully Nintendo eventually realizes they need to invest a little more in RD, in their IP, be a little bit more, I guess, risky with their uh investments.
48:15
SPEAKER_00: What sort of opportunities would you like to see, or what opportunities do you see for Nintendo?
48:22
SPEAKER_01: So, first and foremost is obviously just the continued growth of the Switch.
48:26
SPEAKER_01: Again, it's been really positively received, and my hope as a shareholder is that we're just at the start of this cycle and it can follow the trajectory of the first console that was 154 million units sold.
48:40
SPEAKER_01: Second of all, there's going to be the ongoing IP unlock.
48:43
SPEAKER_01: We've seen again huge success with the likes of the first Mario movie.
48:47
SPEAKER_01: We've got at least two future movies locked in, and I imagine if this becomes a sort of every couple of years success, Nintendo will just continue releasing that.
48:57
SPEAKER_01: And again, we've got this really nice flywheel effect where Nintendo can make money as a studio through the movies, but is exposing a new generation to their IP.
49:05
SPEAKER_01: We've also got the shift to digital only games, which is great.
49:08
SPEAKER_01: Nintendo is sitting at about 63% of all game purchases in 2025.
49:14
SPEAKER_01: They're in a digital format, which ultimately leads to higher margins.
49:18
SPEAKER_01: And lastly, for me, the big one has to be about that ecosystem.
49:23
SPEAKER_01: It has to be where they can really win, is the fact that if you consider the buy-in for gamers into the PlayStation ecosystem, Nintendo can shift towards that.
49:34
SPEAKER_01: They've got over 100 million active accounts, they've got 34 million Nintendo Switch online users, they're at the start of this new console cycle.
49:44
SPEAKER_01: As a shareholder, that's where I want to see them win.
49:46
SPEAKER_01: I want to see them improve on the on the user and gamer experience so they can ultimately charge these gamers more and include them more in the ecosystem.
49:56
SPEAKER_01: So that's where where I think the opportunities lie for Nintendo.
50:00
SPEAKER_01: And then obviously, lastly, we've we've covered it, but that 13 billion, where can they go and make big bets?
50:06
SPEAKER_01: For me as a shareholder, I think it's investing in sort of plug-in and play IP, but you may have a different take on that.
50:13
SPEAKER_00: You can do a super dividend.
50:17
SPEAKER_01: Yeah, that would always be nice.
50:19
SPEAKER_01: I don't I don't see where it's going to come from though, Steve.
50:21
SPEAKER_01: I don't I can't see, I think we could be almost having the same conversation.
50:25
SPEAKER_01: I I've looked back on my write-ups on Nintendo over the last four years, and nothing's changed, if I'm honest.
50:31
SPEAKER_01: Like they've done great when it's came to their their sort of roadmap of releases.
50:35
SPEAKER_01: Financially, they're in a similar position.
50:38
SPEAKER_00: Do you think it would make sense for Nintendo to try and build their own streaming platform?
50:44
SPEAKER_00: A little Netflix-like, maybe even incorporating mobile games into the platform just like Netflix?
50:52
SPEAKER_01: Yeah, I wouldn't I wouldn't disagree with that.
50:54
SPEAKER_01: You know, there's there's certainly a smart way to include new or you know, generate a new audience or engage with an audience uh as a bit of fun.
51:03
SPEAKER_01: Um this is uh this is a a way back if anyone has time to sort of search through my old Substacks.
51:08
SPEAKER_01: But in 2021, I put a piece out that said Netflix should buy Nintendo.
51:14
SPEAKER_01: And actually, you know, it was a bit done a bit as tongue-in-cheek, but it sort of made sense um because of the fact that you know we we look at Netflix's bid this week um and you know for for HBO and Warner Brothers, and actually they could they could do a lot worse than Nintendo.
51:30
SPEAKER_01: So especially when Netflix for a while seemed to be pushing more towards a gaming setup.
51:36
SPEAKER_01: So listen, maybe that maybe that does again.
51:38
SPEAKER_01: I'm I can't see it because I don't I'm not totally confident or sure about the setup in in Japan, but something like that sort of acquisition off Nintendo could make total sense for for someone like Netflix or Disney out there.
51:52
SPEAKER_00: Yeah, they'll never allow it, but uh it would be fun.
51:56
SPEAKER_00: I don't think the the Japanese government would ever allow like the culture change and uh they going to Japan, anime is such a part of culture.
52:08
SPEAKER_00: Pokemon, Mario.
52:10
SPEAKER_00: I believe the prime minister once went to the open the Olympics in a Mario suit.
52:17
SPEAKER_00: It is just attached to Japanese culture, and uh I I I don't think they'll ever allow it.
52:24
SPEAKER_00: They might license the IP for a long time for a very expensive deal to Netflix.
52:29
SPEAKER_00: I don't see the problem there.
52:30
SPEAKER_00: HBO is probably not going to happen either.
52:33
SPEAKER_00: I don't think they're going to get it.
52:36
SPEAKER_00: I think someone will outbid them.
52:37
SPEAKER_00: I think it's a poor deal for Netflix as well, but that's a different story.
52:41
SPEAKER_00: IP, man, such an interesting thing to have as a company.
52:46
SPEAKER_00: It's such a unique advantage because it's so intangible.
52:50
SPEAKER_00: You know, you can everybody knows Pokemon, but you own the rights to make a Pokemon movie or a Pokemon card.
53:00
SPEAKER_00: It's so how can you place like a value on that?
53:03
SPEAKER_00: It's so difficult.
53:06
SPEAKER_01: It's funny because um obviously we've we've talked a bit about um historically the companies like Games Workshop and even LVMH.
53:15
SPEAKER_01: And there's there's a there's a makeup in there that of how humans interpret things that you know, whether it be a Louis Vuitton handbag or Games Workshop figurines, that both of which, from a from a practical perspective, you know, you could you could buy for a tenth or even less of what you're paying these guys, and IP falls right into that category.
53:37
SPEAKER_01: And I think it's funny, I'm I'm sort of starting to understand my investment style more based around the fact obviously I've got shares in both those companies, I've got uh shares in Disney.
53:48
SPEAKER_01: As an investor, I seem to like intangible assets.
53:51
SPEAKER_00: Yeah, apparently.
53:52
SPEAKER_00: I think the those three examples are great IP examples.
53:56
SPEAKER_00: Let's call you the IP investor from now on.
54:03
SPEAKER_01: I don't yeah, I don't I don't uh know what the IP I and P stand for.
54:06
SPEAKER_01: Um so yeah, I listen to him.
54:08
SPEAKER_01: I really enjoyed this.
54:09
SPEAKER_01: I like Nintendo as a company, they are frustratingly conservative.
54:14
SPEAKER_01: As a shareholder, I like where the company is going.
54:18
SPEAKER_01: I'm a little bit concerned about the price of the shares right now, but as we talked about in our Google podcast, I do think the market is largely up.
54:28
SPEAKER_01: So I won't be buying any more at this price, but I don't think I'll be selling it.
54:34
SPEAKER_00: Alright.
54:35
SPEAKER_00: Sonny is holding on to Nintendo.
54:37
SPEAKER_00: I think I think that is the right way to go about a company like this.
54:41
SPEAKER_00: Like you said, this is a company to hold for decades, not a couple years.
54:47
SPEAKER_00: The share price will probably half eventually again when the cycle turns or when like something happens with IP.
54:58
SPEAKER_00: I think that's natural for a company like this.
55:00
SPEAKER_00: Disney, it happened to Disney many times.
55:03
SPEAKER_00: Uh it happened to Apple a couple times, so it will happen to Nintendo as well.
55:09
SPEAKER_00: But hey, great company to own, lovely IP, and we're gonna enjoy the games, the IP, the cards, as long as we live.
55:17
SPEAKER_00: And it's uh it was fun to talk about a company like this.
55:21
SPEAKER_01: Yeah, and I think you know, for me, just as a closing thought, I think um we've talked about it before, I think, is the Lindy effect, and we talked about maybe a bit of the frustration around Nintendo or my frustration um about the investment.
55:36
SPEAKER_01: But as uh as a conservative shareholder, in a hundred years, will Nintendo still be around?
55:41
SPEAKER_01: I'd I'd optimistically say yes.
55:44
SPEAKER_00: Uh, me too.
55:45
SPEAKER_00: Yeah.
55:46
SPEAKER_00: Whether it beats the market a couple hundred over the next hundred years, I don't know.
55:51
SPEAKER_00: I think it has done about eight percent since going public, so pretty average.
55:57
SPEAKER_00: But um, the company is definitely still alive, and whether it's larger or smaller, that's up for debate.
56:03
SPEAKER_00: But the IP will still be here.
56:06
SPEAKER_00: That's my guess.
56:07
SPEAKER_01: Great.
56:07
SPEAKER_01: Thanks for watching for having me again.