On Friday, Nintendo (NTDOY) released its newest gaming console, the Switch, and the results have been so far overwhelmingly positive. This is particularly good news for the Japanese company, for which this launch might be a make-or-break event.
Nintendo is as much a cultural institution as it is a video game maker. The company burst onto the home-gaming scene in 1983, with an 8-bit cartridge console known as the Nintendo Entertainment System (NES). Since then, the company's gaming hardware and software have become far more technologically advanced, but there's a problem: So has the competition's.
The NES formed the center of many childhood experiences, but in the past 20 years other video game companies have swooped onto the scene with better products. Technology behemoths such as Sony (SNE - Get Report) and Microsoft (MSFT - Get Report) have released several generations of their own consoles, the PlayStation and Xbox, respectively. And game publishers like Actvision Blizzard (ATVI - Get Report) and Electronic Arts (EA - Get Report) have dominated the game sales charts.
In addition, smartphone gaming has become increasingly popular and profitable for Nintendo's competitors. As titles such as Candy Crush topped the charts, downloaded by a broad audience of more casual gamers than console games attract, Nintendo's consoles sat on the shelves. The company's last next-generation release, the Wii U, was introduced in 2012 to disappointing results.
That changed somewhat last summer when Niantic Labs, a former subsidiary of Alphabet (GOOGL - Get Report) , released Pokemon Go. The mobile game, which used characters licensed from Nintendo, rocketed off the charts as it became the world's most downloaded app for a few weeks. And since Niantic itself is a privately held company, many investors who wanted to profit from the Pokemon craze invested in Nintendo instead.
The company's stock skyrocketed. But there wasn't much to maintain those gains. As the popularity of Pokemon Go started to wear off, so did the craze for Nintendo's stock.
The company, hopes buoyed by the popularity of mobile games, released its own first mobile release, Super Mario Run in September. But the game wasn't the smash hit that the company had expected--and casual players were put off by the game's upfront $9.99 price.
With the new Switch console, Nintendo is hoping to bridge the gap between the console market it once dominated and the mobile gaming industry it just hasn't been able to crack. And it looks like it's off to a great start--sales for the first two days of availability have broken all previous Nintendo system sales records. But will it be enough to sustain this company long term?
We'll have to wait and see. Nintendo's future looks particularly bleak if the company isn't able to break into mobile gaming soon. After all, its competitors are already ahead of the game.
Investors should continue to be wary of Nintendo's stock. Perhaps the Switch will yield some quick boosts to the share price in the short term, but long-term investors have better chances with gaming companies that are already thriving in the mobile space.
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