The gift Wii all want for Christmas
Nintendo enjoys market cap boost on console's massive appealOn a recent morning outside a Los Angeles area Toys "R" Us, a dozen people lined up at the door a half-hour before the store was to open.
Their reason? They had been tipped off that a shipment of Wii video game consoles had arrived. It had, but not large enough, so a few of the early risers went home without the coveted holiday present they intended to purchase.
The popularity of Nintendo's hit console -- and the resulting shortage of supply -- has encouraged more than one Wall Street analyst to quip that the best way to profit from the sensation is to buy as many units as you can lay your hands on, then sell them on eBay, where they typically go for a $100 premium.
That method might work better than purchasing Nintendo's U.S.-traded ADRs, because they have more than doubled this year and are up nearly fivefold during a two-year period, so the easy money has been made.
For one brief moment recently, Nintendo sported an even larger market capitalization than Sony, quite an achievement when you weigh Sony's varied assets against Nintendo's mere video game properties.
Sony chairman and CEO Howard Stringer recently argued that Nintendo's market cap boost might stem from its narrow product focus, while conglomerates often see a price discount. "Sometimes I wish there were just three products," he said about Sony's position vis-a-vis Nintendo (HR 11/9).
Either way, if one thinks it's too late to buy Nintendo ADRs, there are other stocks poised to benefit from the Wii phenomenon, if not as much. In fact, some analysts said Nintendo's fortunes will trickle down to even its competitors because the Wii has brought so many more gamers into the fold.
The Wii -- with its $250 price tag, wireless remote control that users fling through the air like it's a tennis racket and simple-to-learn games -- appeals to families, "not just pimply faced nerds with a joystick," said Rick Munarriz, an analyst with the Motley Fool.
Need proof? Check out some of the videos on YouTube that feature senior citizens playing Wii games, including one of an entire league of gray-haired Wii "bowlers," some in wheelchairs.
Since the Wii has attracted so many novice gamers, young and old, profiting from the phenomenon should be as easy as purchasing shares of the publishers that make the most popular Wii games. For now, that's Nintendo itself, but that could change as more publishers jump on the Wii juggernaut.
Disney Interactive Studios, for example, is notching strong sales with "Hannah Montana: Spotlight World Tour" and "High School Musical: Sing It." Both are available for multiple platforms, though the Wii versions are selling particularly well.
But video game sales don't move the needle at a conglomerate as huge as Disney, so there are other investments more directly tied to the Wii.
Munarriz suggests THQ, which has licensing arrangements with Disney and Viacom's Nickelodeon for making Wii games based on such properties as "Cars" and "SpongeBob SquarePants."
But again, thanks in part to the growing base of gamers that Wii has encouraged, all the major publishers should benefit, Munarriz said. "It's like shooting fish in a barrel. They'll all do well in the next two years. They have the wind at their backs."
Naturally, there are dissenters.
"The problem with Wii is it's facing a major shortage both on the hardware and software production side," said one money manager specializing in the video game sector. He acknowledged that it's a relatively good problem to have.
"Activision has 'Guitar Hero' on the Wii that sells out immediately. Take-Two Interactive Software has 'Carnival Games' that is consistently sold out and Electronic Arts has a large catalog of games that are benefiting from higher than expected Wii software demand," the money manager said.
While he sees some near-term volatility with video game equities, he, like Munarriz, predicts that the Wii's success will eventually rub off on others.
"It's best to see the overall picture, which is that Wii is helping expand the overall install base to a more casual audience," he said. "Every major player involved in this industry will be celebrating this time next year."
Some analysts suggested not overthinking the thesis and to just buy shares of GameStop, the retailer that sells video games. That's one reason Wedbush Morgan Securities analyst Michael Pachter rates the stock a "strong buy."
"We are already well into this holiday-selling season and all signs are that video games are top sellers," he said.