1

Earnings Calendar Jul & Aug 2017: Gaming, Media & Tech Companies

 

Welcome back friends! Time to get excited for numbers, and charts, and graphs. Lots of ’em.

 

This post is a little later than usual as the “quarterly earnings season” is already well underway, but there’s still plenty of companies within tech and gaming that have yet to announce how their business have been faring during the past few months.

 

Per usual, above you’ll see a full calendar of public companies and the dates on which earnings results are posted. Then below is a link to a Google Doc containing this same information for easy access to investor relations websites for your viewing pleasure.

 

Working Casual Earnings Calendar Jul & Aug 2017: Gaming, Media & Tech Companies

 

Some companies on my radar this quarter are as follows:

 

Amazon $AMZN: The massive online retailer based in the States announced its whopping $13.7 billion acquisition of grocer Whole Foods $WFM in June, so it may provide some sort of update on the status of this deal when it reports this Thursday, July 27th. The deal itself is a key development in the retail space as it cross over between digital and brick-and-mortar sellers, however that’s part of the reason it’s under continued scrutiny from the U.S. government and no formal approval has been given thus far.

 

 

Take-Two Interactive Software, Inc. $TTWO: The owner of studios Rockstar and 2K Games has seen growth lately based on the ongoing success of Grand Theft Auto V, in particular its online component. However, GTAV released all the way back in 2013, plus Take-Two doesn’t have any triple-AAA game releases this year now that Rockstar’s widely-anticipated Western Red Dead Redemption 2 was delayed. In an interview recently with GamesIndustry Biz, CEO Strauss Zelnick acknowledged the thin release schedule and commented that ideally the company would release more big titles on a regular basis. I don’t think we’ll hear much in terms of RDR2 status other than it’s still in the development phase, but the company needs to reassure investors that its line-up can support big gaps between Rockstar’s heavy-hitting games.

 

 

Activision Blizzard $ATVI: Activision Blizzard reports on Thursday, August 3rd and is in arguably the best position this year of all the major worldwide video game publishers. Blizzard’s multiplayer hero shooter Overwatch continues its widespread appeal more than a year after release, surpassing 30 million registered players and transitioning to a viable eSports franchise with the announcement of the Overwatch League this month. The company’s Crash Bandicoot N. Sane Trilogy, released in late June, is vastly exceeding expectations as it was the best-selling game in the world during its release month. Not to mention upcoming releases, where Activision boasts two games with huge upside that I believe will end up in the Top 5, if not Top 3, games by sales this year: (the Game of the Year contender and what might be the best game this generation if it was up to me, hah) Destiny 2, out September 6th, and Call of Duty: WWII, releasing on November 3rd. Oh, and it also now has fully integrated King Digital into its structure so it has significant mobile exposure too.

 

 

Vivendi SA $VIV: Lastly, as I’ve noted in the past, whenever French media firm Vivendi reports, there’s the potential it could formally announce a bid to purchase Ubisoft Entertainment SA $UBI, which has already reported stellar results itself for its last fiscal year. As of Vivendi’s latest annual report, it now owns 26.8% of Ubisoft’s outstanding shares, meaning that my prediction the acquisition will not happen anytime soon less and less likely by the quarter.

 

 

Thanks as always for checking out the calendar and my thoughts on some of the companies on the list. Any announcements you’re looking forward to in particular? Will the publisher of your most-anticipated game this year

 

 

-Dom

 

Sources: Company Investor Relations Websites/Press Releases, MarketWatch, GamesIndustry Biz, Business Wire.

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Earnings Preview: Nintendo’s Last Decade & Why Its Bright Future Starts Now

 

It’s been a challenging few years for Nintendo, but that all changes today!

 

Well, technically tomorrow, when Nintendo Co Ltd $NTDOY is scheduled to shares its final quarterly earnings of 2016, along with its full year results ending March 30th. It’s the first earnings release that covers all the new ventures Nintendo is presently embarking upon, in particular its mobile initiatives and its latest console product, the Switch.

 

Exactly one year ago, I first wrote about Nintendo’s financial position. It wasn’t all doom and gloom, but it certainly wasn’t anywhere near ideal for gaming’s oldest and most recognizable company. I think that’s about to change, and I’ll tell you why.

 

Note that these are not adjusted for inflation, but rather are reported figures.

 

First, let’s set up the situation leading into tomorrow’s important earnings release. The couple of charts above show how Nintendo’s revenue and net income (i.e. profit) have fared during the last decade or so going back to 2006. Note that starting with this quarter, 2017Q4, these are estimates based on analyst consensus since these obviously haven’t been reported yet.

 

Technical jargon alert! These analyst expectations for this most recent quarter are: Revenues around ¥158 billion (~ $1.43 billion), with a Net Loss of ¥13.5 billion ($122 million).

 

Back to regular jargon? Both of these results would be nice improvements since the same time last year.

 

Now looking big-picture, the time frame here spans two “full” console cycles for Nintendo, the Wii in 2007 and Wii U in 2012, then of course the early days of the Switch which only released last month. There were also three handheld iterations during these years, if you count the tail end of the Nintendo DS that had versions release during 2006-2009, then Nintendo 3DS in 2011 and finally Nintendo 2DS in 2013.

 

You’ll notice the results recently have been somewhat soft since early 2011, even holiday sales had been trending down in recent years (these occur in Nintendo’s 3rd quarter). This can be mostly attributed to lackluster Wii U sales after its release in 2012, since to date these total only 13.56 million units which subsequently leads to lower software sales despite the console having some really quality games on it. Compare this to the crazy Wii sales at 101.63 million or even earlier consoles like GameCube at 21.74 million, and you’ll get a sense for how Nintendo’s console hardware business has been dragging it down recently. Luckily its handheld business has been propping up the company’s overall bottom line.

 

 

 

But alas! The oldest gaming company can in fact learn new tricks, and here are a handful of reasons why I’m mostly upbeat from this earnings release going:

 

  • Mobile software. (This is big.)
  • Switch sales momentum. (Even bigger!)
  • Old franchises, new games: Zelda, Mario, Pokémon, (potentially Metroid, Kirby, Star Fox and the list goes on.)

 

Its new back of tricks started last year with its foray into mobile games, starting with Miitomo in March 2016 though really reaching peak phenomenon with Pokémon GO last July. It has since released Super Mario Run and Fire Emblem Heroes, with plans for an Animal Crossing game slated for this year. When it comes to financial impact, Nintendo admitted that Super Mario Run came in below expectations but I believe that’s a byproduct of the company testing different pricing models for its mobile games. Once it settles into the mobile space from a monetization standpoint, I expect it to be quite lucrative and have an impact right away on its results this year.

 

Nintendo’s toe-dipping into mobile is all well and good, but we know it for being a company that makes great games for its own cool hardware. Think about the classics: the Nintendo Entertainment System, the Super NES, the Nintendo 64.. You get the picture. Though it’s been a while since these came out, Nintendo’s success has often hinged on it leveraging great hardware to create memorable experiences for all ages, and this is where the Switch comes in. I mentioned in a recent post the early sales success the hybrid console is having, so I won’t delve too much into the specifics, but suffice to say that I am confident Nintendo will hit us with some very positive figures and guidance when its earnings report is revealed tomorrow.

 

What would constitute “very positive”? According to Bloomberg, analysts on average are expecting that around 10 million Switch consoles will be shipped during April 2017 to March 2018. Personally, my expectation is in-line with this and I’ll even go as far to say that my personal prediction is 11 million will ship, bolstered by upcoming games like Mario Kart 8 Deluxe and Splatoon 2 but most importantly Super Mario Odyssey this holiday. Combine this with the likely 2 million units that shipped during March, and that number through this time next year could very well be 12-13 million. Which is essentially what the Wii U has sold during the past 5 years combined. So, increased sales in a shorter window equals a financial boon.

 

 

Still, platforms are nothing without software. And I remain fully confident in Nintendo’s first-party software line-up, which features some of the most well-established brands and characters in all of gaming. Just this year alone we’ve already seen a brand new Zelda game in The Legend of Zelda: Breath of the Wild and we’ll see a mainline Mario game in Super Mario Odyssey before the holidays. But going further, Nintendo has brands like Pokémon, Metroid, Kirby, Star Fox and more that are almost certain to be featured on Switch sooner rather than later, with some even expecting a Pokémon title to be brought to the platform this year.

 

This type of software portfolio is unparalleled in the games industry. Not to mention its development teams are super talented. So if Nintendo plays its cards right with quality new games from its oldest franchises, and gets them onto the Switch most importantly, the upside is significant. Software sells hardware. Plain and simple.

 

Now, don’t get me wrong, questions remain with the company. Especially when it comes to these areas:

 

  • Third party software support. This means companies other than Nintendo’s studios making games for its platforms.
  • Its handling of its back catalog. Right now, Nintendo’s sales platform for older games called Virtual Console is not available on the Switch.
  • The online subscription service that it’s developing for the Switch for release this year. This is an integral part of “modernizing” its offerings.
  • Plus the firm’s baffling decisions surrounding its novelty “mini” platforms the NES Classic and Famicom Mini, the former of which being discontinued for some reason and even when it was available, there were supply issues.

 

But it’s nothing that Nintendo hasn’t faced before. Shoot, it’s been around over a hundred years! In the context of its recent history, if you take this quarter and upcoming year, I think there is more to be optimistic about than the flip side. We’ll hear more about where its business is headed tomorrow, but I anticipate it will be pretty good news.

 

Are you as bullish on Nintendo as I am? Or taking a wait and see approach? Have you bought any of Nintendo’s products recently? If so, how do you like them? Feel free to leave a comment or shoot me a note on Twitter, where I often post daily about the games industry!

 

Sources: Nintendo Co Ltd, Bloomberg, NASDAQ, Tokyo Stock Exchange, Geek Insider

 

-Dom

0

Earnings Calendar Apr & May 2017: Gaming, Media & Tech Companies

 

Updated 5/15/2017

 

It’s “earnings season” again, and you know what that means! Time to get geared up with an updated calendar covering the usual gaming, media and tech companies. This particular part of the year is especially interesting and important, as many companies end their fiscal years in March and will be reporting both quarterly and annual figures.

 

As always, the image above shows you a number of relevant dates for this earnings season. Feel free to save or share, or if you’d like to view this in Google Doc form where it’s easier to access the links, check it out below.

 

Working Casual Earnings Calendar Apr & May 2017: Gaming, Media & Tech Companies

 

 

As I mentioned, this time of year is always super important since full-year figures are provided, and then forecasts are given by companies on their upcoming fiscal years. Aka even more data than usual!

 

Within gaming, the “Big Three” console hardware manufacturers will all be presenting annual earnings within the next week: Microsoft $MSFT and Nintendo $NTDOY on April 27th then Sony $SNE on April 28th.

 

Out of these, I’m certainly most interested in hearing from Nintendo. Of course. It’s the first earnings release after the Nintendo Switch hybrid console launched in early March, and we will now know how many units were actually shipped/sold and also its early contribution to profit. Indications are that the Switch is doing quite well. Originally, the company said it would ship 2 million Switches in its initial roll-out, and according to NPD Group, 906K of those were sold in the United States during March. For some context, that’s more than the legendary Wii console sold during its launch month, and that console went on to sell over 100 million units. I’m not saying that the Switch will sell close to that in the long-run, but early on it’s certainly showing strong demand.

 

There have even been quotes as high as 2.4 million Switches being sold worldwide, per SuperData Research, so we’ll know for sure come next week how many fit into the time frame leading up to the end of March and more importantly, how these hardware sales and software like The Legend of Zelda: Breath of the Wild are contributing to its bottom line.

 

 

As for other notable companies on the list, both Alphabet (Google) $GOOG and Samsung Electronics numbers come in next week, then the largest company on the planet, Apple $AAPL, will present on May 2nd. All will be quarterly reports.

 

Both Samsung and Apple will be sharing ongoing sales stats of their flagship smartphones of course, including the iPhone 7 which launched in September, and it will be worth watching Samsung especially to see how much financial impact from the Note 7 debacle. I expect it was much worse from a PR standpoint than it was on its profits, personally, since the Note series doesn’t contribute as much as other products. Note that Samsung launched its Galaxy S8 smartphone line today, so sales there will be reflected next quarter.

 

 

Rounding out reports during May will be a couple of European companies, in particular Vivendi $VIV and Ubisoft Entertainment $UBI. I mentioned these two side-by-side as we haven’t heard much about the former’s ownership stake in the latter for a number of months now. At last measure, Vivendi owned 25.15% of Ubisoft, which signaled to some analysts that a hostile takeover was upcoming. Personally, I don’t know if that’s a battle Vivendi wants to fight right now, especially as Ubisoft strengthens with two of the best-selling games this year in Tom Clancy’s Ghost Recon: Wildlands and For Honor. I don’t expect a takeover to happen just yet.

 

Note that there are still some companies that haven’t announced dates yet, including Chinese tech conglomerate Tencent Holdings, Japanese game makers Sega Sammy and Square Enix plus noted domestic publisher Take-Two Interactive $TTWO, so I will update accordingly when we hear from them.

 

Any companies on the list that you’re keeping an eye on? Did I miss any? Are you as excited as I am (you should be!)? Let me know, and thanks for checking in!

 

Sources: Each of the companies listed, Google Finance, NPD Group, SuperData Research

 

Disclaimer: I have owned Intel Corp $INTC stock in the past. As always, this is not a recommendation to invest in any companies but used for informative and analytical purposes.

 

-Dom

2

Earnings Calendar Jan & Feb 2017: Gaming, Media & Tech Companies

 

Here we have the first “earnings season” of 2017 for gaming, media and technology stocks, and just like last quarter, I’m right here to map out the schedule so you can keep up-to-date with all sorts of fun, interesting financial results. Why else would you be here!

 

As usual, above I’ve compiled a list of numerous companies that are reporting results this quarter. Since it’s the beginning of a new year, some will even report full-year figures from their latest fiscal years. Bonus content!

 

Below is also a Google Docs link you can use as a reference, in particular if you want to check out a company’s Investor Relations website as I’ve listed each alongside company name and ticker:

 

Updated 2/6/2017: More companies and dates are present

 

Working Casual Earnings Calendar Jan & Feb 2017: Gaming, Media & Tech Companies

 

A couple higlights include Nintendo $NTDOY having its first earnings meeting since formally revealing its newest console, the Nintendo Switch. Might hear some sales expectations if we’re lucky.

 

This is also the first earnings release for Time Warner $TWX after announcing it will be acquired by AT&T $T. Might be some further guidance on this deal and its timetable, as it was one of the largest acquisitions announced in 2016.

 

And lastly, we’ll see if Vivendi $VIV provides more information on its ownership stake in publisher Ubisoft Entertainment SA $UBI. At last count, Vivendi owned more than 25% of Ubisoft, which has pundits thinking a hostile takeover is fast-approaching.

 

Before I go, note that a handful of companies like Alibaba, Netflix, Samsung and Verizon and have reported already earlier this month, so going forward I’ll shoot to have this article up a bit earlier. Apologies, but hey we’ve got plenty of earnings season left to enjoy. Let me know if you are looking forward to any resutls in particular, or if I missed any you might want to see on the list. Thanks!

 

-Dom

1

Earnings Calendar Oct & Nov 2016: Gaming, Media & Tech Companies

working-casual-earnings-calendar-oct-nov-2016

 

Quarterly earnings season has started again for public companies, where they report how business is going over the latest 3 months period. I started this type of post last quarter, and have again compiled an Earnings Calendar above for select companies in the gaming, media and technology sectors that you might be interested in following.

 

This is also available as a Google Doc at the link below, in case you’d like to visit any of the Investor Relations sites with ease.

Working Casual Earnings Calendar Oct & Nov 2016: Gaming, Media & Tech Companies

 

Microsoft Corp ($MSFT) and Advanced Micro Devices ($AMD) are the first of these firms on the list to report, with results coming after U.S. stock market is closed for the day. This kicks off what is always an interesting, fun time for those of us who enjoy knowing how companies are doing and hoping for as much transparency as possible!

 

Some of the names to keep an eye on this quarter are the following:

 

apple-logo-rainbow

 

Apple Inc ($AAPL): Reporting on Tuesday 10/25, the largest company in the world’s earnings are always a great indicator of consumer sentiment worldwide. It will be especially interesting this quarter with the release of its latest mobile iteration, the iPhone 7, plus the ongoing woes of its major competitor Samsung Electronics ($005935) which recently lowered guidance because of the discontinuation of its Galaxy Note 7 line of products.

 

HACS_001_logo_R_ad

 

Nintendo Co Ltd ($NTDOY): Just this morning, Nintendo announced its long-awaited new console (code-name “NX”) as the Nintendo Switch, a device that gamers can use at the home or on-the-go as a handheld platform. This obviously won’t impact earnings just yet, as it’s slated for release in March 2017, but this will be the first financial release where the very popular mobile game Pokemon GO contributes to sales. Still, I expect another sluggish quarter for Nintendo as it doesn’t receive 100% of the revenue from Pokemon GO plus its existing hardware is getting long-in-the-tooth and doesn’t have many titles driving sales.

 

sony-ps-vr

 

Sony Corp ($SNE): Sony has “lost” the battle with Microsoft in the U.S. when it comes to console hardware sales during the last three months according to the NPD Group, with the Xbox One outselling Sony’s PlayStation 4 during this time frame. A lack of major exclusive games and the Xbox One having a new “slimmer” model are primary factors, though the PlayStation 4 is still leading when it comes to overall sales by a large margin. Sony also released its first foray into virtual reality last week in PlayStation VR, but this happened after its latest quarter ended so its contribution won’t be until next time.

 

Which companies are you watching closely this quarter? Any big products or news stories that you think might influence how firms in these industries are faring? Shoot me a note!

 

Sources: NASDAQ, NPD Group, Company Investor Relations & Press/Media Websites

-Dom

1

Earnings Calendar July & Aug 2016: Gaming, Media & Tech Companies

Microsoft Logo

 

Every quarter, “earnings season” comes around and gets us financial nerds excited. This is the recurring time period when public companies around the globe announce results for their latest financial period, whether it be quarterly, semi-annually or annually. The releases for this latest quarter usually happen between July and August for the months prior to the end of June i.e. half-way through the year.

 

Different companies have different fiscal periods, of course, but this is the general timetable and it makes for an interesting time since it’s the best way to get a handle on how well a company is performing and also gather reactions from investors, analysts and industry commentators.

 

Ubisoft Logo

 

In “celebration” of our latest earnings period, I’ve compiled a list of select companies in the gaming, media and technology industries and the dates on which each will reveal their latest results. See this full list as follows.

 

This list has been edited as of 8/4/2016, with updates to some that were “estimated” previously. These are NVIDIA, NetEase, Mad Catz and GameStop.

 

Still unsure on Square Enix and NCSoft, will update accordingly!

 

Working Casual Earnings Calendar July Aug 2016 Update2

 

This is also available via the following Google Docs link, in case you’d like to visit the individual links I’ve compiled:

 

Working Casual Earnings Calendar July & Aug 2016: Gaming, Media & Tech Companies

 

This is sorted based on timing, and I’ve included a link to each firm’s investor relations site which is where you can go of course to read the full announcements. Public companies will also have an earnings conference call where executives and key personnel announce the results formally and take questions from analysts covering their stock.

 

This is actually my favorite part of the earnings ritual, in particular the analyst Q&A sessions, as the calls offer even much more insight into how a company is doing. Sometimes executives will provide facts or statements outside of what is in the press release or filings, and it helps provide further context for results and also it’s revealing on who is running the company. And there are even times when an executive can’t answer one of the questions, or dances around the real answer, and it’s fun to see the back-and-forth between these parties.

 

Nintendo Logo

 

A couple highlights are today both Microsoft Corporation and Ubisoft Entertainment SA will reveal their latest results, then next week the world’s largest company Apple Inc will be reporting.

 

Nintendo Co., Ltd. will also report next week, after the exceptional initial success of its Pokemon Go venture with The Pokemon Company and Niantic Labs. I wouldn’t expect to learn how much this new mobile game sensation is contributing to revenue just yet, as it’s only been out for a week and a half (hard to believe, right!). Still, Nintendo will likely address the game in some capacity.

 

Technology manufacturer Samsung Electronics Co Ltd is late next week, as is huge retailer Amazon.com Inc. These companies, in addition to Apple, are often a sort of barometer for how consumers are acting on a global scale.

 

Tencent Logo

 

Lastly, in August, we’ll hear from Tencent Holdings Ltd in its first financial release after acquiring Finnish developer Supercell for $8.6 billion. The company is now the world’s largest public gaming firm by revenue, and serves as a benchmark to seeing how well the international mobile games market is faring in particular.

 

Want to hear more about the releases as they happen? I often try to provide perspective and figures/numbers on Twitter when I’m not writing here, so visit me and shoot me a tweet! I should have a write-up on a couple of these companies soon, in particular both Activision Blizzard, Inc. and Nintendo. Until then, did I miss any companies you are following? Please let me know and I’ll add them accordingly.

 

Sources: Company Investor Relations Websites, Wall Street Journal, Newzoo.

 

-Dom

1

Bottom Line: What is Activision Blizzard’s Actual Business Mix After KING Acquisition?

KING-NYSE

 

Now that Activision Blizzard, Inc. (ATVI) today has reported its first quarterly earnings since its acquisition of King Digital Entertainment PLC (KING) in February, how does its business mix actually look now and does this indicate potential upside going forward?

I predicted a few weeks back that based on KING’s financials, the combined firm’s Mobile segment would now comprise approximately a third of revenue, operating income and distribution channels (latter of which is the means by which customers purchase its products). This would mean that after Activision Publishing, Inc., the firm’s interactive entertainment and games segment that produces titles like Call of Duty and Skylanders, its new KING unit would be the next-largest contributor to overall business. Note that KING is the maker of mobile games like Candy Crush and Farm Heroes. I wasn’t exactly right about this, yet, but keep reading below to see details.

Additionally, I noted that the post-acquisition geographical breakdown would be interesting to see as the two companies presented these classifications differently. After looking at operating units, we will peek at what locales are driving the firm’s new business structure as well.

The results are in for this past quarter, and revenue plus income figures across its units are as follows:

 

ATVI Segmented Revenue & Income 2016Q1

 

For context, I have tabled these actual numbers against my predictions and earlier years below. Note that the earlier figures are fiscal, and they account for KING’s earlier financials inserted alongside ATVI’s original businesses, so focus on the percentages instead of the totals as a comparison:

 

ATVI Actual Revenue & Income 2016Q1 Table

 

You’ll see that my estimates were a bit high, at least for now, as actual revenue contribution by KING is 23% while it accounts for almost 27% of income. I still think that over the next three quarters, this could increase to a third of ATVI’s overall business as mobile grows and Blizzard potentially stagnates. Unless Blizzard’s online FPS Overwatch (releasing 5/24) performs extremely well, but that’s a discussion for a different day.

Now I will present the same exact values as charts showing the percent of each in the context of the overall business. Again, everything prior to 2016Q1 is an illustration using KING’s financials inserted, as was done above:

 

ATVI Actual Revenue 2016Q1 Chart

ATVI Actual Income 2016Q1 Chart

 

The next shot is an overview of Distribution Channels from the earnings report. Quick reminder that this is how consumers purchase content and services provided by ATVI:

 

ATVI Distribution Channels 2016Q1

 

Below are these actual distribution numbers compared with  earlier fiscal numbers. Basically, these are as expected though I believe Mobile is now included in Digital which accounts for the bump:

 

ATVI Actual Distribution Channels 2016Q1 Table

One more perspective which I did not have in my earlier article is revenue by platform. I think it’s especially relevant now after KING’s contribution. You’ll see console is still the dominant platform at 53% of sales:

ATVI Revenue by Platform 2016Q1

 

As for geographical profile, a quick snapshot shows that North America is still the main contributor followed by Europe:

 

ATVI Geographical Segments 2016Q1

 

My last comparison across years, this time for percentages from different geographies:

 

ATVI Actual Geographical Segments 2016Q1 Chart

 

What these figures tell me overall is that despite KING/Mobile still being a smaller contributor than I initially anticipated, I still think it’s a key strategy going forward as its upside is more than Blizzard’s. Digital is already the main means by which consumers purchase the publisher’s games and services, so its diversification into Mobile as an additional revenue source and channel is a natural progression of its business model as a broad software publisher. This is especially relevant given my expected future decline of Blizzard subscriptions and traditional physical retail sales of ATVI’s games and software. And based on its stock price movement since the acquisition’s February close, where its shares are up more than 10%, investors seem mostly positive on this move as well.

 

ATVI Google Finance

 

In my opinion, the $5.9 billion bet on an expansion into mobile via KING is a crucial one despite its high cost. At the current rate of earnings (around $270 million per year, given this quarter’s performance), the breakeven on its KING investment is something like 22 years. However, this is conservatively assuming mobile does not grow; I think it will, which will move up that breakeven point. It will still be well worth it in the long-run. as the company diversifies its revenue streams and continues to finance more traditional projects such as console games (for instance new Call of Duty, Destiny titles) and full-price or subscription-based Blizzard entries (Overwatch, potentially new World of Warcraft content) to keep its core fanbase intact.

(Note that I do not know about any new Call of Duty, Destiny, Overwatch or World of Warcraft content other than what’s already been publicly announced. I’m just stating that new projects can be financed through sales of mobile games now that KING is assimilated into the ATVI structure.)

Do you agree that a foray into mobile was essential for ATVI, or should it have built organically from within and focused on core business such as console and subscription-based gaming platforms?

Sources: Activision Blizzard, Inc., Google Finance

-Dom

16

Bottom Line: How Healthy is Nintendo’s Financial Position Ahead of Earnings & NX?

Nintendo Logo

 

Ahead of Nintendo Co., Ltd (7974) earnings release and investor conference this week, let’s take a look at the gaming firm’s financials: how healthy is it really right now before the pending formal reveal of its latest hardware piece dubbed “NX” and its move into mobile?

If internet chatter and market sentiment are to be believed, Nintendo is struggling badly. Its stock is down 30% over the past 6 months, indicating investors are nervous. But is this warranted given its current situation and future prospects?

Perhaps, but I think it’s overblown. Compared to competitors Sony Corp (6758) and Microsoft Corporation (MSFT), Nintendo has smaller market capitalization and sales/income figures. But I’d argue it’s also a much more focused company that’s pure-play gaming, whereas the other two are broader corporations. When looking at strictly gaming-related figures, Nintendo’s sales are in fact lower than both though operating margin is comparable to Sony’s (Microsoft is better than both here) which indicates it doesn’t sell as well but it is actually more efficient from a profitability standpoint.

 

Comparison of Nintendo, Sony & Microsoft Gaming Segments 2

 

Edit: Caveats to above table is that Microsoft includes the following in its Computer & Gaming Hardware segment: Xbox gaming and entertainment consoles and accessories, second-party and third-party video game royalties, and Xbox Live subscriptions (“Xbox Platform”); Surface devices and accessories (“Surface”); and Microsoft PC accessories.

Additionally, it does not directly report Operating Income at its segment level but rather Gross Margin, so I have taken this figure out of the table for now. I would like to get a better estimation of Operating Income before updating again.

The main knock on Nintendo lately is that the Wii U console, released in late 2012, has been a failure. Below shows Wii U lifetime sales each fiscal year compared to both Wii and Nintendo 3DS, aligned for their launch timings. It’s true that sales of the console have been lackluster compared to recent consoles and Nintendo’s handhelds, but the success of the Nintendo 3DS in particular has supporting sales and earnings since its release in 2011.

 

Nintendo Hardware Unit Sales Launch Aligned

 

Still, you’ll notice below that from a monetary standpoint, Nintendo is actually not trending downward. In fact, it turned an operating profit in 2015 for the first time since 2011, just after peak success of the Wii (released in 2007). Its net income was also positive in 2015 compared to losses in 2014 and 2012. Sure overall sales have declined a bit over the past five years, but last year’s figure of ¥549 trillion (~$5 billion) is only around 15% lower than 2012. Additionally, taking into account its liabilities, the firm has around just under ¥100 trillion ($1 billion) of cash available which it can use to invest in future endeavors.

 

Nintendo Select Financials

Nintendo Select Financials 2

 

And Nintendo is also a software company, which is a key component of its overall business. Software sales have softened a bit over the past five years, but I expect a bump once NX is released in time for 2017 financials.

 

Nintendo Software Sales

 

Which brings me to the key going forward, as most gamers understand: Nintendo’s new NX hardware has to be a hit, its foray into mobile needs to be monetized and it needs great games in order to achieve a financial rebound. It has to differentiate NX from Wii U, similar to how Wii separated itself from its predecessor in GameCube. The way Wii had motion controls, NX needs to stand out.

Common speculation has it that the NX is a cross-over between a console and handheld, and that it will bridge the gap between home and mobile gaming plus offer an online infrastructure that is superior to the Wii U and Nintendo 3DS. But Nintendo has yet to commit to any sort of messaging on the new console yet. The firm did release its first mobile game, Miitomo, this month however has yet to show any sort of monetization. It’s more of a foundation upon which to build future mobile games.

All in all, Nintendo’s current financial situation is somewhat concerning compared to recent years and its big competitors, but it’s not as dire as its stock performance or internet message boards will have you believe based on profit rebounding and cash on hand to invest in its future. Do you agree?

Sources: Nintendo Co., Ltd, Sony Corp, Microsoft Corporation, Google Finance.

Note that all figures above are based on today’s exchange rate between JPY and USD.

-Dom

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Bottom Line: Can Twitter Break Through Its Plateau & Grow?

Twitter Inc (TWTR)

Bottom Line: Between sluggishness in its user base and advertising dollars not able to outpace overall costs, what can TWTR do to jump-start growth and alleviate investor concern that it has hit a wall? How would you improve TWTR? Can the firm afford to change its service without alienating its dedicated users? See my opinion at the end of this post!

Twitter Inc (TWTR) is quite an interesting company in this day and age, as a rare “mature” social media company. Three years after its IPO, it has released its 2015 results and the news is mixed despite best efforts to jump-start growth. Which begs the question, has TWTR reached its plateau for users and revenue potential? Or will users respond positively to it adapting its strategies as it matures?

Quick snapshot, revenue is up more than 50% to $2.2 billion however the company is still losing money as it has for years (according to Generally Accepted Accounting Principles, or GAAP, the standard used in the States). Though, it is losing less money this past year per below. I will note that the company reports “adjusted EBITDA” which is their non-GAAP measure of profit, as it excludes certain expenses.

 

TWTR Financial Summary 2015

 

Main concern is that for the first time ever, the company’s monthly average users were flat for the last quarter of 2015. Though annual users were up 9% to 320 million, this is the first time that TWTR’s user base has stagnated on a quarterly basis. Note that the vast majority of these users are outside of the United States, and in fact its users in the States declined during this time frame.

 

TWTR Monthly Users 2015

 

The firm reassures that users have since come up for the month of January, but we won’t know for sure until next quarter’s earnings. This is an essential detail, because users have been slowing down across 2015 compared with earlier years culminating in a flat quarter indicating that the firm may be hitting the dreaded plateau that maturing tech companies sometimes see. Investors have responded with skepticism, with the firm’s stock declining around 60% since beginning of 2015.

Still, like all companies, it’s about monetization. Its business is split across two areas: Advertising and Data Licensing & Other. The former segment is the main revenue driver, and grew to $2 billion last year primarily due to an increase in advertisers. Still, the company has substantial sales and marketing costs plus research and development which combine to $1.6 billion per year. It’s an example of a firm growing sales, but costs aren’t being held in-check at the same rate. It’s also interesting to me that a company like TWTR, which seems ubiquitous in today’s society, spends so much on marketing itself but perhaps this is akin to Pepsi Inc running TV ads to maintain its brand identity.

Another couple of items I’d like to mention are its young CEO Jack Dorsey returned to the firm last year and has started to reshape the look and feel of its core services, plus expand in areas like video streaming (via Periscope) and “Moments” which displays current news items and topics but is only available in three markets so far. The firm has the lofty goal to reach across the entire globe, but for some perspective, it is still small compared to a peer like Facebook which has 5 times the amount of users.

Personally, to answer my initial questions, I think the user experience is key and making it as easy as possible to on-board new users should be a cornerstone. Additionally, continuing to present itself as the go-to source for “live” interaction across a broad sweep of people with expanding “Moments” into more markets and supporting its existing video offerings is also a key strategy. I think the firm is doing a good job at integrating non-intrusive ads into its user experience and offering self-service for advertisers, it’s just that costs of doing business in particular marketing costs are still high and without further user growth, profitability and investor confidence seems a ways off.

Sources: Twitter Inc 2015Q4 Earnings, NY Times

-Dom

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Bottom Line: Disney Record Results But Market Outlook Negative?

Walt Disney Co. (DIS)

Bottom Line: Star Wars brand drove a quarter with record income for DIS, but contraction in Media Networks is a concern for analysts and investors going forward. It should be an interesting year for DIS as pipeline includes Finding Dory, Captain America: Civil War, more Disney Infinity but the main areas to watch are Star Wars merchandise and the future of ESPN.

Questions: What other areas or products can drive growth for DIS this year? Are you positive overall on ESPN? Can Star Wars alone, between licensing and merchandise, abate concern with Media Networks at least this year?

Dissecting a huge media conglomerate’s financials is a monumental task, so I won’t necessarily be posting every single stat or figure but want to address the above question while overviewing the company’s current business.

DIS reported 2016Q1 earnings this week, with record net income however the market sentiment is still negative as indicated by the firm’s stock movements after earnings release. So what’s behind this divergence? The firm’s main profit drivers are Media Networks (cable channels, ABC & ESPN etc) and Studio Entertainment (movies, including Star Wars and Marvel titles) with the latter almost doubling income since last year due to Star Wars: The Force Awakens release.

DIS Segments 2016Q1

The key here is that Media Networks income contracted since last year despite sales being up, as costs are also increasing on a relative basis. Driving this is partly timing, as the College Football Playoffs occurred during this quarter, but also rate increases for sports programming and production costs going up. A general concern is the sentiment around ESPN in particular, where programming costs are up and cable subscribers are “cutting the cord” adversely impacting advertising potential. To combat this, DIS is trying to expand ESPN mobile offerings, as WatchESPN now displays all live shows and events in order to have more eyeballs on advertising. I’ve even heard rumblings that DIS should consider an approach similar to HBO Now, offering ESPN content separate from a cable contract for a subscription fee. I’d say this is a last resort, at present.

DIS Media Networks 2016Q1

DIS Studio Entertainment 2016Q1

As for gaming, the Consumer Products & Interactive Media is actually quite healthy but this of course seasonal and this quarter included holiday 2015. Revenue and income were boosted by licensing from Star Wars i.e. Star Wars: Battlefront while Disney Infinity results were lower (sales volume down, inventory up). Even compared to last year, when Frozen merch was all the rave especially with kids accumulating annual sales of $3 billion, Star Wars gear has just begun to reap benefits and Nielsen expects it to account for $5 billion in revenue across this year.

Last note is that DIS results are being propped up by the steady Parks and Resorts segment, up more than 20% since last year driven by Americas region. I see this as continuing to be a key component of the firm’s diversified approach, especially as the cable landscape changes and products/interactive media remains seasonal and dependent on the strength of content and titles.

Sources: Walt Disney Co. Form 1oQ February 9, 2016; Walt Disney Co. Q1 FY2016 Earnings; Nielsen

-Dom