In an effort to make its shares more appealing to retail investors, Nintendo Co. Ltd. (TSE:7974, Financial) (NTDOF, Financial) announced on Tuesday a 10-for-1 stock split.
The Japanese gaming giant known for its Mario, Donkey Kong, Legend of Zelda and Pokémon franchises said the split will go into effect on Oct. 1 of this year. At that time, each share of common stock will be divided into 10 shares.
While stock splits do not fundamentally change a company in any way, they do make single shares cheaper for a larger number of investors. Additionally, they are usually positive for a company’s share price.
On Tuesday morning, Nintendo’s Tokyo-listed shares were up 0.25% at 56,360 yen ($432.94), while its American depositary receipts rose 5.95% to $450. Year to date, the Japanese listing has gained nearly 5%, while its U.S.-listed shares have fallen around 4%.
Nintendo also announced it plans to buy back 56.36 billion yen worth of shares. The transaction will occur on Wednesday.
Over the past several years, other major companies, including Apple Inc. (AAPL, Financial), Amazon.com Inc. (AMZN, Financial), Alphabet Inc. (GOOG, Financial) (GOOGL, Financial) and Tesla Inc. (TSLA, Financial), have announced stock splits as well.
Earnings update
The surprise split announcement came as Nintendo reported earnings for fiscal 2022, which ended March 31.
The company posted net income of 477.60 billion yen for the year, which declined 0.6% from 2021, and revenue of 1.69 trillion yen that was down 3.6% year over year.
Despite launching a new OLED model during the year, Nintendo attributed the declines partly to lower Switch sales as it was “affected by shortages of semiconductor components and other parts.” Sales of the popular console range totaled 23.06 million units. This was down from 28.83 million units in the previous 12-month period.
For the current fiscal year of 2023, Nintendo has forecasted sales of 21 million Switch units, a 9% decline. It also warned that production could continue to be impacted by supply chain disruptions and Covid-19 restrictions.
While the company’s hardware sales faced headwinds, consumers continued buying its games. Software sales increased 1.8% over the last fiscal year to 235.07 million units, driven by demand for games like “Pokémon Legends: Arceus” and “Mario Kart 8 Deluxe.” Nintendo recorded that it now has 100 million annual playing users.
Continuing to capitalize on its classic consoles and cast of characters, the company also has a strong pipeline of upcoming games, including “Nintendo Switch Sports,” “Xenoblade 3” and “Splatoon 3.”
Valuation and guru investors
Regardless of the increase in share price, the GF Value Line suggests the U.S.-listed stock is fairly valued currently based on its historical ratios, past financial performance and future earnings projections.
Additionally, the GF Score of 91 out of 100 indicates Nintendo has high future outperformance potential, having received high marks for financial strength, growth and profitability as well as decent ranks for GF value and momentum.
According to filings for the quarter ended March 31, Nintendo’s Tokyo-listed shares are held by Bestinfond (Trades, Portfolio) and the T. Rowe Price Japan Fund (Trades, Portfolio). No gurus are currently invested in the ADRs.
