The Next Big Thing for Nintendo Is … Cardboard?

Nintendo Labo - The Next Big Thing for Nintendo Is … Cardboard?

Source: Nintendo

Nintendo Co., Ltd. (ADR) (OTCMKTS:NTDOY) teased a big announced for Thursday evening, promising a new “interactive experience” for the Nintendo Switch. And what the company revealed caught everyone off guard. Nintendo Labo is a series of cardboard DIY kits built around the Switch and its controllers, including a $79.99 robot suit and 13-key piano. Will Labo be the kind of hit that drives Nintendo stock to even greater heights? Or will the cardboard accessories turn into another Virtual Boy?

NTDOY stock was up over 3% in anticipation of the announcement and is up 2% as of this writing.

Here Comes Nintendo Labo

There were many theories about what Nintendo was going to announce yesterday, but I’ve yet to read one that saw this coming. Yesterday evening, the company took the wraps off Nintendo Labo.

Labo is a series of do-it-yourself (DIY) cardboard kits that all use the Switch as their brains and incorporate its Joy-Con controllers for inputs. Software is included with each kit that lets it interact with the Switch to control functionality and play exclusive games. Kids are encouraged to be creative with the models they build, including adding stickers or even painting them (Nintendo will gladly sell them the stickers, plus stencils and tape in a $9.99 Customization Kit).

With the cardboard, DIY approach, Nintendo is making a play for the kids’ toys market — a swipe at Lego and other companies that sell kits that kids assemble. It’s also trying to appeal to parents by promoting Nintendo Labo as being educational, with elements of the “maker” trend also thrown in for good measure.

The Nintendo Labo kits are also clearly aimed to keep Switch sales hot by adding to the console’s capabilities. And at a starting price of $69.99 per kit — more than a new game — the Labo kits could be a real revenue generator for the company once that initial console sale is made. All positives for NTDOY stock.

Adding Fire to Record-Setting Nintendo Switch Sales

Just a few years ago, the viability of Nintendo seemed doubtful. The Wii U misstep was threatening to bring the company down with it. However, the Nintendo Switch has turned into a monster hit. This month it broke the record to become the fastest-selling game console in U.S. history, notching 4.8 million U.S. units in just 10 months. Since its launch on March 3, 2017, NTDOY stock is up nearly 98%.

If the Nintendo Labo is a hit with parents, the kits will add to Nintendo’s revenue. They are priced starting at $10 more than Nintendo’s AAA game titles like Super Mario Odyssey. And because they require a Switch, the potential is there to boost Nintendo Switch sales, just as the console approaches its second year on the market. In other words, there’s a lot of potential upside for NTDOY stock.

The Risks

The “cool” factor of the Nintendo Labo kits is obvious. However, Nintendo isn’t the first company to combine high tech with cardboard. Do you remember Alphabet Inc’s (NASDAQ:GOOG) Google Cardboard DIY virtual reality headset kit? My kids have had a few of those and they illustrate one of the big risks of the Labo kits: cardboard wears quickly and falls apart.

A Google cardboard kit is only assembled once, it doesn’t have moving parts, and it still gets worn and tattered pretty fast. The Nintendo Labo kits can be quite intricate with multiple components and moving parts. How well are they going to stand up to kids? As a parent, shrugging off a $20 cardboard VR kit is one thing, but cardboard construction kits that start at $69.99 is another.

Then there’s the possibility that Nintendo has over-reached with the Labo and released another Virtual Boy. A very cool product that tapped into the mind-90s fascination with virtual reality, but became the company’s biggest flop, selling just 770,000 units.

The next big thing, Switch sales catalyst or a miss, we’ll start to get an idea of how the Nintendo Labo fares when it hits shelves starting April 20. If the Labo kits sell out quickly, expect NTDOY stock to get a boost. If not, there’s still the Switch and its record-setting sales to keep up the momentum.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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