Nintendo: Wii Fit will capture new market

Yesterday, at the annual E3 Show in Santa Monica, Nintendo unveiled its newest creation for its red-hot video game system: Wii Fit. Aside from being an unbelievably cool-looking game, Wii Fit is the breakthrough product that will truly establish the Wii as a must-have for the whole family.

Wii Fit utilizes a new balance board, perhaps inspired by the classic NES power pad (I remember even my parents trying this out). The pressure-sensitive board not only registers your movements and projects them on-screen, but also measures your BMI (body mass index) to let you track your fitness progress. Wii Fit features over 40 activities, including hula-hoop, push-ups, yoga, and step aerobics.

Wii has already proven to be a hit at parties and with kids, and now Nintendo looks poised to cash in on yoga moms and business professionals with little time to work out.

Although Wii Fit isn’t due to hit shelves until early 2008, Nintendo has announced other much-anticipated titles due out in late 2007 that will keep its momentum going: Super Smash Bros., Mario Kart, and Super Mario Galaxy. This is an exciting time to be a Nintendo shareholder, and although we originally recommended NTDOY.PK at a lower price, the stock shows no sign of slowing down even at these lofty levels.

Disclosure: SmartGuyAB is long NTDOY.PK

Nintendo: Skeptics are sign stock will keep rolling

Today’s WSJ reports that Nintendo (OTC: NTDOY.PK) still has vocal skeptics:

“The Wii’s popularity is unbeatable at the moment, but it will be facing tough competition in the fall. Some skeptics also say that Wii’s popularity is short term, based largely on the strength of Wii Sports …” (Nintendo on a Roll With Wii, July 5, 2007.)

So long as a group of analysts continue to scare people away from Nintendo shares, the stock still has room to run as these naysayers are proven wrong and their congregation converts to owners of NTDOY.

The risks of competition in the fall and waning Wii Sports popularity are very weak assertions. Regarding competition, the Wii is by far the cheapest console and will continue to appeal to parents worldwide as a more affordable purchase - especially as fuel, food, and energy costs eat into family budgets. Parents are also well aware that once a console invades the household, demand for new games is as constant as dad’s need for fresh razors. Again, the Wii is more appealing than PS3 and Xbox360 because Wii games are cheaper. If you do not believe me, watch a pack of moms peruse the game isles at your local Target.

The Wii also has advantages over competition because the gameplay is revolutionary and unique. Thus, the Wii appeals to an enormous mainstream that would never consider purchasing another console because these consumers do not consider themselves video game players. Furthermore, based on price, unique gameplay, and brand loyalty from Nintendo DS, the Wii seems to be a much more appealing option for young teens and preteens. Therefore, analysts who work 100 hours a week in cubicles on Wall Street may talk about blanket business risks such as competition, but those of us who interact with society are well aware that Wii competition is a lot weaker than supposed in theory.

Insofar as Wii popularity somehow being completely dependent on Wii Sports, anyone who takes a moment to talk with an employee at GameStop, EB Games, or Best Buy knows this is nonsense. In fact, when I bought my Wii the salesperson immediately recommended two additional “must have” games that are super fun to play on the Wii.

Honestly, who thinks of these silly risks? I cannot seem to find any sales data that supports these unproven claims. Rather, all sales data objectively points to the contrary — not to mention that when friends congregate at my house, the Wii is the most popular person at the party.

Digital River: Keep your eye on the tide

Digital River (NASDAQ: DRIV) provides comprehensive e-commerce solutions to retailers of software and other technology products. In other words, if you buy virus protection software from Symantec (Digital River’s largest client) over the internet, Digital River manages both the engine that delivers the software and the promotions that persuaded you to buy it. I’ve been following this stock for years, and have had pretty good success trading it - I bought shares between 27-35 in late 2005 and sold in the high 50s earlier this year on valuation concerns.

Last week, Digital River slashed revenue and profit guidance for the 2nd quarter and remainder of the year, citing delays in new initiatives for Symantec and Microsoft. The company tried to soften the blow by announcing an increased share buyback and new deal with Microsoft. Yet the market didn’t take kindly, dropping the stock over 10% to under 45.

While this latest development was a disappointing contrast to Digital River’s history of underpromising and overdelivering, I’m inclined to give management a pass this one time. I believe that the underlying business of digital delivery is still strong, as content providers across all industries move away from traditional brick and mortar sales.

Digital River is the number one player in e-commerce management, and its biggest competition is companies’ internal operations. Naysayers need only to look at ADP in payroll processing and Amdocs in customer billing to realize that specialized service outsourcing is a much-needed and lucrative business.

Digital River should get back on track once Symantec fully transfers its global subscriptions business and Microsoft ramps up its Vista sales. There’s also been rumors of Digital River making a big mark in the fast-growing video game market through a major deal with Electronic Arts.

Although I believe Digital River is a solid company whose shares should be much higher 2 or 3 years from now, I think there may be some more downside to the current share price. The current P/E of 30+ seems pricey for a company whose updated guidance calls for only 12% top-line growth this year. I suggest keeping a close eye on this one, but staying on the sidelines until we see a more compelling price or new positive development.

Disclosure: SmartGuyAB does not own shares of DRIV

Nintendo: A homerun in the fast growing video game industry

• Buy NTDOY.PK around 42.60

Nintendo (OTC: NTDOY.PK) manufactures hardware and software in the fast growing video game industry. Thus, the company makes the razors and the blades. More importantly, Nintendo is the only video game console maker with a profitable operation. On the game side, the company created such industry icons as Mario and Donkey Kong and launched franchises like The Legend of Zelda and Pokémon.

The video game industry has been growing gangbusters for the past decade. In fact, video game sales now rival sales of other major media including music, books, and movies. For those with a futurist bend, video games are sensory-rich experiential mediums evolving toward the inevitable virtual reality.

In addition to the exciting macro trend, Nintendo has recently taken center stage as a gorilla in the new console cycle. The Wii console offers revolutionary game play through controllers with sensitivity to full-scale motion. In English, this means Wii gamers swing the controller like a bat while playing baseball, or shadow box while boxing. This exciting development makes me believe the Wii is the new media killer app and will dethrone the iPod as the must have product of the times.

During the month of May, Nintendo continued it’s stronghold on the market holding down the two top spots for hardware sales with the Wii and handheld Nintendo DS, and lassoing four of the five top-selling game titles for the month. Also note that in Japan (a critical market for success) the Wii has outsold the PS3 fivefold and Microsoft’s Xbox 360 at a 2-1. One word comes to mind: domination.

The macro and micro story is firing on all cylinders, and a check under the hood reveals that Nintendo has the financials to support a solid long-term investment. The company had record operating profits of $1.91billion (FY ‘07), more than double FY ‘06. In addition, net income is up 77%.

I recommend nibbling on the stock whenever it pulls back. Keep your eye on Japanese interest rates because their rise will affect NTDOY, but not Nintendo’s super surging global growth.

Disclosure: SmartGuyDH is long NTDOY.PK