Crossroads Capital on Nintendo Co., Ltd. (NTDOY)

Pitch Summary Nintendo delivered yet another solid quarter — this time despite a swirl of concerns around the Switch 2’s holiday performance. The noise began with questionable “third-party data” suggesting U.S. holiday sales were running roughly 35% below the original Switch’s comparable 2017 period, spooking “investors” and raising questions about whether the $449 price point was capping demand. Those fears only intensified after Walmart ran Cyber Monday promotional markdowns that were widely — and incorrectly — interpreted as company-led price cuts (Nintendo doesn’t discount its hardware). We’ve decided to save our thoughts on recent concerns on memory pricing for a separate piece, but suffice it to say, the proximate causes behind the latest rounds of false panic in Nintendo’s equity almost defy description. For what it’s worth, we think author and longtime Barron’s contributor Tae Kim captures the dynamic behind the recent selloff perfectly, describing the latest series of head-scratching bear narratives as “Exhibit No. 9,283 on how no one in media and Wall Street does any real research or work and just vibes by creating imaginary narratives and generating pseudo-analysis.” If that reads like hyperbole, we assure you it’s not. Case in point, this is now the fourth time this cycle that false Nintendo narratives have been proven wrong, a pattern Jefferies analyst Atul Goyal has been particularly sharp in highlighting. Pre-launch, the concern was that pricing was too high and the software lineup was weak — that the Switch 2 would struggle. Reality: Switch 2 sold 3.5 million units in its first four days (Nintendo’s fastest hardware launch ever) and set an all-time US launch-week record, hardly the profile of a “struggling” console. In what we’ll call “Q1” (Nintendo’s fiscal Q1, April–June 2025), tariffs were supposed to crush hardware margins and cause a miss. Reality: net sales came in roughly ¥80 billion above consensus, operating income beat expectations, and the first Switch 2 quarter was a clean upside surprise. In “Q2” (Nintendo’s fiscal Q2, July–September), the story shifted to “sales have slowed” and are “below expectations.” Reality: quarterly revenue grew ~90% year-over-year, first-half net sales more than doubled, Switch 2 shipments hit 10.36 million units, and management raised its full-year Switch 2 unit forecast from 15 million to 19 million while also lifting profit guidance. In “Q3” (Nintendo’s fiscal Q3, the holiday quarter), the new bear case became “weak holiday sales” in a tough macro. Reality: Nintendo generated over ¥806 billion in revenue (up ~192% year-on-year), shipped 7.01 million Switch 2 units in the quarter, took the console past 17 million units in seven months, and reaffirmed its 19 million unit target as external commentators noted that the anticipated holiday slowdown simply didn’t materialize.

BSD Analysis Nintendo is entering a massive "Supercycle" in 2026, with the highly anticipated successor to the Switch finally hitting shelves and triggering a global retail frenzy. They’ve successfully evolved from a hardware company into a "Global IP Powerhouse," leveraging their movies and theme parks to drive high-margin software sales that competitors can only dream of. Management’s ultra-conservative balance sheet and legendary creative vault provide a fortress-like defensive profile in a volatile gaming market. For investors, Nintendo is the "Disney of Japan," a high-margin content machine that owns the most valuable nostalgia and family-friendly characters in the history of entertainment.

Original Source https://www.buysidedigest.com/bsd-letter/?letter=crossroads-capital-2025-q4