Nintendo Struggling as Super Mario Turns 25

The bleak video game market weighs on NTDOY stock

   

Nintendo (PINK: NTDOY) video game icon Super Mario turned 25 this week. And while the famous plumber is still wildly popular, he should worry about his employer’s future. Nintendo is used to sales challenges, but things are bleak for the entire video game business as consumer spending woes and a surge in portable electronics threatens to reshape the industry.

To its credit, Nintendo doesn’t shrink from a challenge. Take 2003, when they reported their first operating loss in over 100 years – but also announced plans to release the portable Nintendo DS console. The DS has gone on to sell 132 million units in six years on the market.

Or consider that the company’s home console business was all but dead when it released the Nintendo Wii in November 2006, and then NTDOY bounced back as its system became a cultural phenomenon. The Nintendo Wii has sold over 74 million units worldwide.

The success of both systems saw Nintendo shares skyrocket in 2007, peaking at $76 per share. They owe these triumphs to more than just their hardware though. Nintendo’s status as a household name is owed as much to a pudgy Italian plumber as their distinctive machines. The plucky plumbers of Super Mario Bros. have tallied 240 million in lifetime sales, and show no signs of slowing down.

The Super Mario Bros. series latest entry Super Mario Galaxy 2 released this past May to both critical and consumer acclaim, and has sold nearly 1.5 million units over the course of the summer. In fact, the Super Mario Bros. series accounted for three of the top ten best selling games in August 2010 according to the NPD Group. Galaxy 2 was also joined by New Super Mario Bros. for the Nintendo DS and New Super Mario Bros. Wii. These two games have maintained spots in the NPD Group top 20, and in many months the top ten, since their respective releases in 2006 and 2009. As of July 2010, New Super Mario Bros. Wii alone had sold 15.8 million units in just eight months on the market.

These games just represent the sales success of the core series celebrating its silver anniversary. The Mario brand has also fueled Nintendo’s victories. The racing offshoot of the series, Mario Kart, has sold over 40 million units across its Wii and DS variations.

The continued strength of the Mario brand is a bright spot in what has been a relatively bleak year for Nintendo. After a hugely successful five years that saw them dominate the handheld video game market with their line of Nintendo DS devices and also saw them wrench away control of the home console market from Sony (NYSE: SNE) with their breakout Wii console, 2010 has been less than stellar. Video game console sales overall were down over 12% year-over-year at the end of August, but it was Nintendo who recorded their worst console sales since March 2007, and that was during a period when Nintendo was experiencing severe supply constraints.

It’s not just the Wii hardware that’s flagging, but Wii software as well, with sales down 23% year-to-date. Nintendo shares are currently hovering around $35 per share, down 52% from 2007 highs and down even 21% from its 52 week high of $43.95. Share price experienced a spike when the company announced their successor to the Nintendo DS, the glasses-free stereoscopic 3D handheld the Nintendo 3DS, in June. Shareholders and consumers alike are anxious for the consoles rumored late 2010, early 2011 release.

What the Nintendo 3DS really needs, and what has sadly yet to be announced for the platform, is its own Super Mario Bros. to guarantee success.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

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Article printed from InvestorPlace Media, http://investorplace.com/2010/09/nintendo-struggling-super-mario/.

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