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Is Nintendo Co., Ltd the New BlackBerry?

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The company could be on the verge of a major upswing.

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During this fight, I've seen a lot of changing, in the way you feel about me, and in the way I feel about you. In here, there were two guys killing each other, but I guess that's better than twenty million. I guess what I'm trying to say, is that if I can change, and you can change, everybody can change.
--Rocky Balboa in Rocky IV, after winning the Cold War by KO

When you last saw me 'round these parts, I questioned the future of Nintendo Co. Ltd. (OTCMKTS:NTDOY), suggesting that doom could be on the horizon because of lousy hardware sales.

Now, I've been analyzing and writing about the video-game industry from an investing perspective for quite a long time, so I wasn't surprised at the outrage displayed in the comments section of that article. Gamers do not like to hear anything negative about their chosen platforms -- that's just the way it is.

Nonetheless, in the interest of being a good sport, I decided to step back and take a fresh look at the house Mario built.

Nintendo is in a rough spot relative to the last cycle, where it stole the show with its highly innovative Wii and DS handheld. Both did absolutely blockbuster business, as the Wii outsold both the Microsoft Corporation's (NASDAQ:MSFT) Xbox 360 and Sony Corporation's (NYSE:SNE) PlayStation 3, and the DS is actually the greatest-selling gaming platform of all time.

That was certainly a hard act to follow, particularly as the boom in mobile and casual gaming on new platforms like the Apple Inc. (NASDAQ:AAPL) iPhone and even Facebook Inc. (NASDAQ:FB) introduced fresh competition.

The math certainly shows that Nintendo's follow-ups, the Wii U and 3DS, have not performed nearly at the level of the Wii and DS.

In the company's fiscal year ended March 31, 2013, sales came in at 635 billion yen, a full 22% below the company's initial guidance for the year. The company also generated an operating loss of 36 billion yen, vs. initial expectations of a profit of 35 billion yen.

And Nintendo itself said, "The operating loss increased primarily due to the sales of 'Nintendo 3DS' and 'Wii U' being weaker than expected."

However, there are signs of a 3DS renaissance that admittedly, I failed to appreciate.

During the E3 conference earlier in June, Nintendo said that the release of the best-selling and critically acclaimed Animal Crossing: New Leaf boosted US 3DS sales by four times versus the prior week, and also set a new digital sales record for the company.

VGChartz, which provides estimates of video-game hardware and software sales, estimated that global 3DS sales were 124K for the week ending June 8, spiking to 265K the next week. In the US, sales went from to 31K to 97K. That's a threefold increase, which isn't all that far off from Nintendo's comments.

What else? Well, according to VGChartz, as of June 15, three of the top five current selling video games are 3DS games. Animal Crossing: New Leaf is also currently the best-selling piece of video-game software on Amazon.com, Inc. (NASDAQ:AMZN). However, since these are rankings, they may be skewed by light release schedule for the rest of the industry.

Nonetheless, this is a decent string of positive news and anecdotes for a company that's been on the ropes for years.

But at the same time, the Wii U remains a big question mark. Nintendo is hoping an improved release slate, including new Mario and Zelda games coming later this year, can move the hardware.

However, the Wii U remains challenged as it lacks two big selling points that were present in the Wii: 1) the sheer newness factor of the motion-control concept, and 2) a very cheap price.

But let me get to the point: From an investment perspective, Nintendo is starting to look very attractive as a speculative comeback play along the lines of the aforementioned BlackBerry (NASDAQ:BBRY).

Here's why.

The investment community has essentially written off the Wii U. Expectations are practically sub-zero at this point.

At the same time, expectations for the 3DS are on the rise.

So technically speaking, if the Wii U performs as expected (poorly) and the 3DS keeps its momentum, Nintendo could skyrocket -- the same way BlackBerry did last year after expectations bottomed out and folks were pleasantly surprised by the quality of the BB10 operating system.

According to Reuters, analysts are not at all sold on a resurgent Nintendo. Just seven analysts rate it a "buy" versus 11 who rate it a "hold" and three who rate it a "sell."

Additionally, the current consensus full-year revenue forecast is 879 billion yen. That equates to a miss of about 4% relative to the company's guidance of 920 billion yen. Plus, that consensus number has actually been on a downward slope -- it was at 933 billion yen just two months ago.

So if Nintendo can do a little better than okay, the stock -- which is 82% off its 2007 high -- is probably going to rise, simply because of how low expectations are.

The risk, of course, is that the 3DS' sales boom is temporary and it goes back into the gutter.

I don't think Nintendo's going to return to the 2007/2008 glory days, but it doesn't have to for the stock to go up. In this case, a not that bad performance could mean a home run for Nintendo investors.

Also see:

Apple Inc. May Have Opened Pandora's Box With iOS 7

Ouya Trying to Fool? Microsoft, Sony, and Nintendo Shouldn't Worry About the New Kid

Apple Inc. Geniuses Ordered to 'Capture' Laptops Because of New MacBook Air Problems


Twitter: @Minyanville

Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.

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