Will the Switch spark a Nintendo renaissance?

When you look at the top selling games of all-time (below), they are predominantly Nintendo-owned, family-friendly games. This is a nod to the fact its games have been a staple in previous years, but also that there is a universality to Nintendo's output, with men, women, young and old, all finding something appealing in its games. Many of those listed below are only available through Nintendo platforms, whereas games available on the PlayStation have often also been offered on the Xbox, thus splitting the benefit of a strong game. On the list of top-selling games below, it is noticeable that eight of the top 14 games have only been available on a Nintendo device

This brings us to the next differential, which is the question of who actually creates the games we all play. You can play most PS4 games on an Xbox and most titles are developed by external companies rather than the creator of the platform themselves. This can have both positive and negative effects, as it provides a wider range of games on offer, thus raising the likeliness of someone buying the console. However, it also means the likes of Sony and Microsoft rely heavily on console sales and online licenses, whereas Nintendo will benefit from the lifespan of a consumer use of the console.

The fact Nintendo had to develop its own games was actually one of the downfalls of the Wii U, which, to a large extent, was a failure owing to the poor amount of games on offer. The relationship between games and sales is two-way traffic. Strong initial sales increase the funds allocated to developing games, while an increase in the number and quality of games raises sales. With that in mind, keep an eye on sales figures once the console goes live, as this could dictate the amount of resources Nintendo may throw at the console in the future.

Cons

There have been a number of complaints arising in the pre-release period, with hardware being one of the main issues. This is summed up perfectly below, with a comparison of the Switch to the PS4 and Xbox. Bear in mind both competitors have since announced more powerful, upgraded versions of their consoles. The Switch pretty much loses across the board, with some areas showing huge differentials.

The issue we have to consider here is whether this is necessary for the type of game on offer. There is no doubt a ‘first-person shooter’ requires more lifelike, detailed graphics compared to the likes of Mario. The target audience is going to be more interested in the interactive element and quality of gameplay rather than the feeling of being in the game. 

The second issue many raised is the price, which, at £279, is significantly more expensive than its older competitors. However, when the Playstation 4 (£349) and Xbox (£300) consoles were first released, they were both more expensive than the Switch. If the Switch is sufficiently desirable, users will likely be happy to pay a little more for a newly released console. 

The chart below highlights the long-term trajectory of Nintendo shares, with the beginning of 2008 marking the decline of the company’s market value. However, we have started seeing a resurgence in both price and volumes over the past year, raising the likeliness that we have seen the company bottom out. 

Looking on the weekly chart now, it is clear we are moving back into a stepped uptrend, with the current pullback expected to resolve with another sharp leg higher. With that in mind, bullish entries around the 61.8% (¥20,819) and 76.4% (¥17,975) retracements make sense as means to ensure the risk-to-reward is maximised. As long as we do not see a break back below ¥13,393, then a bullish outlook is in play. It is highly unlikely that we will see the share price return to the ¥70,500 highs of 2007, yet at such a low base, there is a good chance that a strong launch could provide the spark for a substantial period of upside.