One Trader Made A $540 Million Bet Against Nintendo

Image: Kotaku

The Switch is doing rather well, but Nintendo's stock hasn't been of late. The company's share price has dropped 27 percent since hitting its peak in May, and a new report has revealed that one trader has been making a huge bet against the company.

A report from Bloomberg has noted that Melvin Capital Management has assembled a short position against Nintendo worth $540 million ($US400 million).

The latest filing on the Tokyo Stock Exchange revealed that Melvin Capital shorted 1.2 million shares — approximately 0.8 percent of the Nintendo's entire outstanding stock. It's the largest position against the Japanese console manufacturer and developer since 2013.

The AFR added that Melvin Capital had increased the size of their short position after E3. The same day Nintendo held their E3 showcase, Bloomberg Technology interviewed Nintendo of America president Reggie Fils-Aime about the company's declining stock price.

Fils-Aime responded by saying that Nintendo had more surprises up their sleeve, and implied that analysts were being shortsighted given that Nintendo uses E3 to showcase games and updates that are coming out over the next six to nine months. "We believe there's a lot more value for the consumer to tell them about content, and then launch it, just like Fortnite," the NoA president and COO said at the time.

It's intriguing given that the rest of the year looks relatively good for Nintendo. While there isn't another Zelda, main Mario or Metroid Prime on the roster, the company's online network is due to launch in September. Morgan Stanley MUFG analysts estimated that'll recoup about $232 million (¥19.2 billion) in operating profit over the 2019-2020 fiscal year. On top of that, Pokemon: Let's Go! is due to launch just before the Black Friday sales, and the console will get a new Mario Party and the return of Smash Bros just before Christmas, as well as notable third party titles like Dark Souls Remastered.

Still, that hasn't stopped Melvin Capital from taking a huge position against the home of Mario. Fingers crossed their position is just based on market trends, and nothing that might materially impact the games we know and love.


Comments

    I'm still a little shocked the stock dipped after E3. I guess analysts were looking for more short term projections, while Nindy put all their beans in Smash.

      They had sweet fuck all at E3 except for Smash.

        At E3 they showed Daemon X Machina, Super Mario Party, Xenoblade Chronicles 2: Torna the Golden Country, Fire Emblem Three Houses, Overcooked 2, Killer Queen Black, Octopath Traveler, Hollow Knight, Pokémon: Let’s Go, Pikachu! and Let’s Go, Eevee!, Starlink: Battle for Atlas, Arena of Valor, Minecraft, Fortnite, Mario + Rabbids Kingdom Battle – Donkey Kong Adventure, Pixark, Just Dance 2019, Dragon Ball FighterZ, Splatoon 2: Octo Expansion, Crash Bandicoot N. Sane Trilogy, Ninjalo, Carcassonne, Mario Tennis Aces , Ark: Survival Evolved, Wasteland 2, Fallout Shelter, Paladins, Dark Souls: Remastered, SNK Heroines: Tag Team Frenzy, Monster Hunter Generations Ultimate, The World Ends with You, Mega Man 11 and FIFA 19.

        Obviously, they wanted Smash to be the showcase game for them at E3 this year, and let's be honest - even if you personally aren't interested, the game will be a system seller, so it made sense for that to be the main focus. However, they actually crammed a lot of games into that 15 minutes or so of the direct before the Smash info started. Some of them are ports, yes. Some of them are indies, yes. But to say they didn't show anything is kind of short sighted.

          Will it be a system seller though? Actually? Because I don't think it will be a huge system seller, just a small blip. The people really excited about Smash are way deep into Nintendo, they already will own a Switch so they can be playing Mario and Zelda. That's their game for the people already invested in the platform.

          A lot of the games you mention are indie games, niche titles, things that were announced months beforehand, or are DLC for existing games. I think Fire Emblem was the only first-party game they properly announced (though we knew it was coming, they said they were doing a new Fire Emblem in 2017).

          I'm not sure that we saw the same E3 conference, as an aside, because a lot of the games you list were definitely not in what I watched. The general consensus afterward was that they didn't show much at all, either.

            Yes, I will believe it'll be a system seller. Smash is a huge franchise for them, and people will buy the system just for Smash. Many have purchased the system since the original announcement of Smash in preparation for it.

            This was the Direct Nintendo showed at E3 in full: https://www.youtube.com/watch?v=akohTFyGu88 - the Smash content starts around 17ish minutes into the video. Prior to that, all the games I listed above and more are shown...more than 30 games are packed into that short amount of time.

              Again, showing games != announcing games. Their E3 presence was incredibly light on actual announcements.

                Aha! But you didn't initially say "announcements", you just said they didn't show anything, which was untrue. If you're talking actual announcements, then yes, I agree they were very light on announcements - even Smash itself wasn't an announcement, they had already revealed it a month or two beforehand. But in terms of games they actually showed, there was a lot - much more than Sony showed us, as a comparison.

                Sony and Microsoft were pretty light on the actual announcements too, for the record. They each showed maybe a couple of new games we hadn't seen and the rest was showing us footage or prerendered trailers for stuff we already knew was coming. Sony's in particular was incredibly disappointing for me as a PS4 owner. They showed one game in the first half an hour and only a handful in the next half an hour after that. Nothing in that conference stood out to me. At least the Xbox conference actually understood we wanted to see games, even if the majority of them weren't system exclusives.

                  I kind of assumed that it was implied. E3 is where you announce new shit and get me excited for the next 6-12 months. Nintendo didn't do that at all.

                  Though to be fair, the most exciting announcement for me was the Tales of Vesperia re-release and that was at the Microsoft conference of all places.

                  And yes, Sony's E3 conference was complete trash. What a waste of time that was.

    The biggest thing people are discounting is that the Switch is doing really well right now, but like all Nintendo platforms, the bulk of the game sales are Nintendo First Party sales.

    They announced some numbers today. The platform is selling great and Nintendo was crowing about the fact they've got ten first-party games that have sold more than a million copies, which is great.

    Trouble is, they revealed there's been 86.93 million games sold on Switch. If you count up the total sales for those ten million sellers from Nintendo, it's 48.15 million games sold.

    That means the entire rest of the pie - which also contains several other Nintendo first-party games - is only 38.78 million. So Nintendo's ten biggest games account for about 55% of the sales on the platform.

    This has been a long-standing problem for Nintendo. Their first party releases are great but it's very hard to compete against them on their own platform. There's people that only buy Nintendo games.

    Every other publisher has got to fight for the 40% or less of the market that Nintendo isn't dominating. Meanwhile on Sony and Microsoft's platforms, there is a much larger percentage of the market that they can sell to.

    Right now the Switch is pretty healthy and third party stuff is selling okay, especially indies, but indies are going to be really happy to move a few hundred thousand copies. If the bigger publishers struggle on the platform, then you're going to see more half-assed releases, floods of crapware, and then the quality publishers will all bail. We saw this cycle on the Wii, the DS and the 3DS. Nintendo's own games are both the blessing and the curse for their platforms.

    There's also a strong argument to be made that Nintendo's already basically blown their load on the Switch already, since we've gotten our Mario and Legend of Zelda games on it and it'll be several years before we see more of those. It's one of the biggest reasons I think their E3 wasn't particularly great - I don't care for Smash Bros, so what was there for me to be excited about now that I already own the system? Fire Emblem and Metroid are in the works but a year or more away. There's some good third party releases this year, but will it be sustained?

    It's not insane to bet against Nintendo at all IMO.

      That's almost always been Nintendo's Achilles heel though. Their highest profile sellers are all in-house IP's, and they go to insane lengths to keep it that way, Mario, Zelda, Pokémon, Donkey Kong, Smash Bros, etc are what drives their platforms.

      Being found nowhere else (mostly) is what drives their sales, because they're just so popular. And because they are so big are always going to make up their biggest numbers.

      Nintendo know this, and cater to it. There are reasons they don't build consoles to directly compete with Microsoft and Sony (these days at least), and those brands are a part of that. If they were a copy of the Xbox and PS, theres less reason those platforms couldn't have more of those IP's, which makes Nintendo weaker.

      I think its a testament to Nintendo that they've managed to keep those franchises relevant on essentially one platform, and managed to keep them good enough that we keep buying tens of millions of the console itself.

      If they release those IP's to other platforms, I don't think it works for them either. They would sell more software copies, but lose a lot of identity in the process. I don't think they want to just be a software developer, and actually like pushing the hardware boundaries a bit.

      Like you, I agree that its not insane to bet against them, as they ARE internally focussed for the most part, and there isn't a huge amount coming. But I hope these traders are quick to cash out when the stock inevitably rises again. The process for the existing IP's is so strong that you know theres another blockbuster just around the corner.

        This is true, and actually I think the breakdown on Switch is better than it has been on other Nintendo platforms, but the fact is that this is a dangerous line to be treading. It relies on the platform staying healthy, and Nintendo's first party games alone cannot keep a system afloat any more on their own (look at Wii U). To some degree Nintendo doesn't care, but they do still need to keep people in their ecosystem if they want to keep it running well, which is why I'm also worried that they've blown their load early in the system's life.

        The Switch is looking great in 2018, but will it still look great in 2019 when Nintendo's scraping the bottom of the barrel for franchises to exploit because they've done everything, and Microsoft and Sony are getting everyone hyped up as they announce brand new hardware iterations?

        Short term they're better than fine, but longer-term I'm not so sure.

          If they release a game or two from one of their Big Franchise IP's every year, they'll be fine. Wont see a new Zelda game every 3 years (or maybe you could), but you can run a Mario product out that regularly. Or a Smash, Donkey Kong, or Pokémon.

          They're all IP's you can vary pretty easily into different genres, just look at Mario v Rabbis. Or tap into one of the other IP's they haven't really exploited yet. Kid Icarus, Star Fox, Metroid... Theres a few.

          Its worked for them on every platform so far, and the Switch is reflecting every other console they've released. The problem is that it only takes one bad major product to turn people off, because they wouldn't have that backup product coming along 3 months later to save the day. A bad CoD on PS4 can be saved by a Battlefield game a month later, or vice versa.

          But that hasn't happened in 30 plus years. I think they have a pretty solid game plan. They just don't advertise it. Personally, I'm a little surprised at them releasing numbers like this. its not their usual approach.

            They have to release numbers like this because their shareholders are increasingly rattling sabers over the fact that Nintendo doesn't mine their IP by making shitty mobile phone games. Because shareholders are greedy idiots.

            I disagree that they can shift genres that easily. Something like Mario & Rabbids is a confluence of a bunch of things at once, it's not the norm for them.

            I suspect you may be overestimating the power of some of their franchises also. Nintendo has a ton of low to mid-tier franchises but only a few that are truly huge (Mario, Zelda, Pokemon, Animal Crossing, Splatoon). Something like Kid Icarus would potentially sell okay if it was a good game, but it's a 1 million seller rather than a 10 million seller.

            To be honest my main worry is that they haven't been showing much in the pipe. Smash this year, Fire Emblem next year. Metroid at some point (supposedly this year?) but so far that's been just a fancy logo.

            I mean, I can't complain much. The system has basically displaced the Vita and the PS4 as my go-to platform if I'm not buying a game on PC (and sometimes even if I do), I just don't want it to fade out for me the way the 3DS did.

              By "easily" I meant that its not the hardest process to create games using the characters that doesn't fit the typical game. Just look at how many Mario games there are that aren't platformers.

              And for those other IP's, I still think there's enough there that they can tap into them every year or so if needed. Doesn't mean they'll be million sellers, but they don't need to be. They just need some brand recognition, and look similar to what people remember. Its a risky model, which is why I don't think its insane to bet against Nintendo, but its worked for a long time.

              You see Mario and Zelda get enough interest to carry a console, then various other ones come along and flesh out the library, until its time to rinse and repeat. Only a couple have truly failed along the way like the Wii U and (arguably) the Gamecube.

              The huge franchises do the heavy lifting though, and always have. I just cant see a massive difference between what the Switch is doing, and what the other mobile platforms did 10 or 20 years ago.

              Which to me says that any risk is only short term. If needed, Nintendo has a lot of options to reverse things, whether its Classic Mini's, second tier IP's, hardware, or playing cards.

          2019 is looking fine. New core Pokemon game, new Yoshi game, new Fire Emblem and Daemon X Machina are all confirmed. New Metroid, Bayonetta and Dragon Quest games will probably be sometime next year as well...but if they end up being 2020 instead, that still solidifies that year's lineup pretty nicely.

          I think the Switch will be fine, personally.

      While Nintendo is a unique company hilding a lot of IP and Capital it doesnt suffer adversly from Risk in the long run (WIi-U) and is a toy company at heart... but as a Tech company its still a bit slow and old and its failure to capitalise on success and reiterate new developes faster is hurting it.

      The investment houses wanted to see fully fledged online services with solid revenue streams, they also want Nintendo to go full tech company and rollout new mobile gaming hardware every 2 years (like they started with the DS) Switch 2.0

      ... a lot of Nintendos smalker investors are fans and not seeing momentum in game development of fan favourite titles and a fullback catalogue is also hurting them.

      Apple, Samsung, Google Play, Netflix, Steam have changed the way we consume electronics and digital media... Nintendo hasnt adapted to that cosumerism and the investors know that.

    I still find it somewhat hilarious that Nintendo introduced Fortnite (and subsequently Paladins) on Switch a few months out from online subscriptions. Nothing like bringing a hugely popular online only game to your platform to get people entrenched in it and willing to pay to keep playing. Yes, it's Marketing 101 but it still feels a little sneaky.

    In terms of the overall performance, it's more or less what I expected. They had a strong launch but haven't really had anything to follow up with in the second year when they need to start building consumer and subsequently major publisher confidence in the console. It's typical Nintendo though because their games have such long tails it's enough to keep things going through the lulls.

    What's different now though (in comparison to the Wii U) is the Indie support which is providing a huge chunk of consumer enthusiasm on top of the First Party titles. It's basically the reverse of the Vita which more or less only survived on niche titles and indie games because Sony stopped support for it so early on.

    Nintendo still need to be more active in encouraging the bigger developers to support it as well beyond ports that aren't as optimised for the platform as they should be. They also need to reveal this "Unannounced content" to build confidence, not just in consumers but also investors. Smash is still a fairly niche title and not as recognisable to people as a Mario or Zelda title, they've just announced the Pokemon RPG has been moved to late 2019 and Metroid Prime 4 still has no release date so there needs to be something to build enthusiasm as we head towards the September rush period.

      I don't think the Fortnite thing is anything to do with Nintendo really - Epic are putting it everywhere they can while it's hot because they're aware it's likely a passing fad and it's not going to stay that way forever, got to cash in while they can.

    Their stock price is dropping because they still haven't used Will Smith's switch song in their marketing - are they crazy? "P

    Price goes up, price goes down. When Pokémon releases for the Switch we’ll probably be reading article about how the share price has gone up by 30% in a week. Commentary on the sharemarket is like reading about sports betting sometimes. Lots of money, lots of speculation.

    I dont think the switch will ever reach the sales number of the PS4. I think it will cap out at about 30-40 million. However, if they drop the priced to below $300 i think they can easily fly past that amount.

      Right now there's no reason for them to drop the price, it's the fastest selling console in history and the system is still selling out in many markets. Maybe if sales performance eventually peters out around that 30-40 million point as you suggest, they might think about a price drop then, but there's no point doing it before that. At the rate it's going though it'll easily reach PS4 numbers and probably surpass it.

        At this rate yes. But no console has sold at it's launch windows rate for the entire life of it. Sales will slow down. It's unlikely to reach PS4 sales numbers.

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