• Digital Revolution: Nintendo's shift from cyclical hardware to Apple-like recurring revenue streams could multiply earnings as Switch ecosystem reaches 100+ million users
• Switch 2 Launch: The Switch 2 represents Nintendo's first major iterative hardware upgrade, validating the iPhone-style evolution that eliminates the cyclical console "resets"
• Hidden Assets: $14 billion cash plus undervalued stakes in Pokémon Company, the Seattle Mariners, and other assets provide massive downside protection while upside remains unlimited
There's something powerful to this millennial about what Ryan O'Connor calls Nintendo's "weaponized nostalgia." Growing up, my connection to video games was not at home (Dad disapproved), but at my grandparents' house, where Aunt Jenny owned the original Nintendo Entertainment System (NES). Playing Double Dragon, Super Mario Bros, World Class Track Meet (on the Power Pad!, look it up), and all the distinctive 8-bit music indelibly etched in my head.
MANY years later I woke up to Nintendo as an investment opportunity, recognizing the emotional moat and the transition from a hits driven to quality sustaining business.
Nintendo Co., Ltd. develops, manufactures, and sells video game hardware, software, and related services globally. Founded in 1889 as a playing card company, Nintendo is one of the world's most recognizable entertainment brands, creating iconic franchises like Super Mario, Pokémon, and The Legend of Zelda that have generated billions in revenue across multiple platforms and media.
We first initiated our position in Nintendo (NTDOY) during Q1 2021, when the ADR was trading around $15. The market was still pricing the company as if the Switch console had already peaked and the 'it's happening' business transition was more risk than opportunity.
This investment embodies a few Flattery Wealth 'Back to Basics Investing' principles, like the importance of identifying asymmetric risk/reward opportunities where downside is limited but upside potential is exponential. Traditional portfolio construction often misses nuances about business model evolution, you're either a “value” or “growth” stock, and whatever happened in the past is likely to continue in the future. Nintendo is a case study in how this academic quant investing fails to capture the qualitative, in this case transformative corporate change.
What fascinates about Nintendo is how the market has misunderstood what's been happening beneath the surface. We’re taking a somewhat contrarian view on an idea in plain sight. Ryan O'Connor made this case in his magnum opus 2019 investor letter, which is well worth the read to go deeper.
Nintendo has been a historically cyclical, “hits driven” business. They have suffered from volatility in the core videogame console business and undermonetization of its beloved game characters. But new leadership turned those pages starting around 2015, setting the stage today for what could be a multi-year run of exponential earnings growth.
I spoke with O'Connor on the Gentleman Speculator podcast, where he laid out the transition that has been taking place. “Nintendo (previously) would release a new console, build up an active playing user base... Then they would release a new console generation. And every time that happened, Nintendo's installed user base of active playing gamers would reset to zero.”
But now that cyclical reset is ending.
O'Connor: “Nintendo is adopting the iPhone model, for lack of a better term.. an iterative hardware model that sits at the center, lays on top of a software-based ecosystem, where over time instead of entirely new consoles, call it every two to three years, you're gonna get a minor iterative upgrade.” The iPhone comparison should sound familiar, Apple releases iterative hardware upgrades that maintain compatibility across generations. It’s a sticky ecosystem. Users upgrade devices without losing their apps or data (or games). New features continuously expand the platform's value.
This leads us to the release of the Switch 2 that launched on June 5, 2025. This event is the culmination of the pivot towards this new model of sustainable growth. So it's happening in real-time and early success is validating the thesis. O'Connor: “the Switch 2 was kind of the final piece. It's the first major iterative upgrade of the Switch generation.”
Nintendo reported on June 10th, five days after release, that the Switch 2 had sold more than 3.5 million units worldwide, which made it the company's fastest selling console to date.
What they are executing here is getting away from having earnings depend on the success or failure of each new console. Instead the Switch + Switch 2 installed base continuously grows (and never “resets”).
There's a 'have your cake and eat it to' aspect to Nintendo's treasure trove of assets supporting the transition to quality growth. There’s the core IP library, beloved franchises like Mario, Zelda, Metroid, Donkey Kong, Kirby, and others, maybe the most valuable collection of family-friendly intellectual property in entertainment. This is capitalism without capital, they carry zero book value on Nintendo's balance sheet, therefore likely underappreciated by the market.
There are also the tangible assets, a large stake in the Pokémon franchise, a 10% stake in the Seattle Mariners being noteworthy for this baseball fan, and much more.
To put a finer point on it, even if the business-transformation thesis is proven wrong, (which looks more doubtful every year of the transition), there is still a war chest of cash (over $14 billion at last glance), the tangible assets, and intangible assets to fall back on as a margin for error.
After accounting for Nintendo's grossly undermonetized IP library, (the most valuable portfolio in the videogame industry?), the market is essentially valuing Nintendo's core operations at zero or negative enterprise value. This is despite the company's massive cash reserves and transformative business model shift. The current forward P/E ratio under 10 further validates this asymmetric risk-reward setup, as the market prices in minimal growth despite the Switch 2's successful launch.
With NTDOY we get a combination of exceptional business durability with transformative change that Wall Street and indexers miss. Their 135-year lindy effect staying power shows resilience. Their family-friendly moat is in an industry increasingly dominated by adult-oriented and/or monetization-heavy games. Lastly, Nintendo's pivot from cyclical hardware dependence to an iPhone-like recurring revenue ecosystem has created an opportunity that we think will continue to reward the patient investor.
Sources:
• Crossroads Capital, LLC. "Nintendo Co., Ltd. (NTDOY, 7974.JP): Links to the Past." 2018 Annual Letter, April 2019.
• Gentleman Speculator Podcast. "Ryan O'Connor - Nintendo, Switch 2, Conviction from Deep Work." June 16, 2025.
• Nintendo Official Site announcements and earnings reports.
-modified.png)
Andrew Flattery is a CERTIFIED FINANCIAL PLANNER™ and Principal of Flattery Wealth Management. He serves affluent families in Kansas City and nationwide. Flattery is the host of Gentleman Speculator, a podcast on legacy, investing, and the life well-lived. When he’s not helping individuals build wealth, you can catch him playing rec sports, writing children's books, and spending time with his wife and four children.
.jpg)