Nintendo Stock Jumps 29%: Can It Sustain The Momentum?

Shares of Nintendo Co (T:7974). Ltd (OTC:NTDOY) surged nearly 29% to close at $36.32, following two surprise announcements at Apple Inc (NASDAQ:AAPL).’s keynote address yesterday.

Apple CEO Tim Cook welcomed on stage Nintendo’s inventor Shigeru Miyamoto to announce the launch of a new Mario game, Super Mario Run, for the iOS platform by the end of this year. Moreover, gaming sensation Pokémon Go will make its debut on Apple Watch.

The year has so far been a good one for Nintendo courtesy Pokémon Go, which met with astounding success. Per media reports, the game raked in $440 million in revenues in less than two months with over 500 million downloads. Though the game has started to witness a fall in active daily players, it still generates $4 million in revenues, globally, per day. Reportedly, as of Aug 30, the average time that players in the U.S. spent on the game was 32 minutes, unchanged from the time Pokémon Go was first released. Pokémon Go was developed by Niantic in association with The Pokémon Company, owned by Nintendo. Shares of Nintendo have surged over 110% year-to-date on the Pokémon Go Craze.

Will Nintendo Continue to March Higher?

Nintendo had earlier noted that the success of Pokémon Go will have a “limited impact” on its financials as it “does not make the game.” Though the success of the game doesn’t directly benefit Nintendo’s financials, we believe that it has strengthened the Japanese video game publisher’s position in the lucrative mobile games space, which should help it to sustain the momentum going ahead. Nintendo had so far remained aloof from mobile games.

Analysts observe that Nintendo was trying to protect its console business by not letting its well known characters like Mario and Zelda appear on mobile platforms. However, mobile games started emerging as a lucrative business option as titles like Candy Crush and Angry Birds caught the imagination of the world. As per an Apr 2016 report, research from Newzoo estimates the global games market to grow 6.6% to $118.6 billion in 2019, of which $52.5 billion will come from mobile games.

Nintendo finally warmed to the idea of mobile games last year and struck a deal with DeNA games to bring five mobile games by Mar 2017. Miitomo was the first smartphone game released by Nintendo earlier this year. It has two more games lined up for release this year namely, Animal Crossing and Fire Emblem. Super Mario Run will be the fifth game of the DeNA collaboration.

Apart from mobile games, another factor that could drive the stock up is the launch of NES. Betting big on nostalgia, Nintendo is reviving the iconic NES almost 20 years after discontinuing it. Only this time, the revamped version will be smaller than the original NES and will have 30 built-in games including Super Mario Bros 1, 2, 3, Legend of Zelda, Donkey Kong, Bubble Bobble and Kirby’s Adventure. An HDMI cable will enable users to plug it into their TV sets to play the games. NES was one of the bestselling gaming consoles in the 80s and 90s and it established Nintendo as a global leader in the video game industry.

Moreover, the company is hoping to turn around its fortunes with its next video game device, codenamed NX, slated for launch next year. However, Nintendo has refrained from revealing anything about NX. Nintendo’s gaming consoles 3DS and Wii U have been underperforming for quite some time and are losing ground to Sony’s (NYSE:SNE) PS4 and Microsoft (NASDAQ:MSFT) Xbox one. In fact, Wii U has been the company’s lowest selling gaming console.

Plus, there are two more Pokémon games scheduled for release this year on its handheld console 3DS. There is tremendous expectation from The Legend of Zelda: Breath of the Wild scheduled for release in 2017 on Wii U as well as NX.

A present, Nintendo carries a Zacks Rank #3 (Hold). A better-ranked stock in the tech space is Facebook Inc (NASDAQ:FB) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).

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