What stocks to invest in = Nintendo’s press release on Pokemon Go « PRACTICAL STOCK INVESTING



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Having the information from yesterday’s post, we can take a closer look at what Nintendo said in its press release from last Friday.  (In what follows, I’m assuming that the English version of the release from the Nintendo website is an accurate rendering of the Japanese.)

The heart of the release is this:

“The Company owns 32% of the voting power of The Pokémon Company. The Pokémon Company is the Company’s affiliated company, accounted for by using the equity method. Because of this accounting scheme, the income reflected on the Company’s consolidated business results is limited.

…Taking the current situation into consideration, the Company is not modifying the consolidated financial forecast for now.”

paragraph 1


True as far as it goes.  Because of equity accounting, Pokemon Company results will have, by definition, no impact on Nintendo’s consolidated gross, operating or pre-tax income.  But the paragraph actually says nothing.

In addition, significant information is left out. Nintendo benefits from Pokemon Go in two ways that don’t appear on the income statement at all.

–Nintendo owns about 10% of Creatures, one of its two 32% partners in controlling The Pokemon Company.  That interest, 3.2% of The Pokemon Company, is accounted for using the cost method, so the portion of Pokemon’s profits that this represents appears nowhere in Nintendo’s income statement

–Nintendo owns about 12% of Niantic, the developer and distributor of Pokemon Go.  If we figure that payments to The Pokemon Company represent 25% of Niantic’s profits, then that firm keeps 75%.  12% of that equals 9% of the total.  In other words, if these figures are approximately correct (I think they are), they indicate that Nintendo profits from Pokemon Go through its Niantic holding by about the same amount that it does through its The Pokemon Company interests.  The Niantic interest is accounted for by the cost method, so none of this appears on the Nintendo income statement.

–some analysts maintain that Niantic also makes direct payments to Nintendo for its use of Pokemon characters.  I’m not sure this is correct, particularly since this money would likely appear on Nintendo’s income statement–but is not mentioned in the press release.

paragraph 2

This is simply Nintendo saying, “we haven’t gotten any money in yet, so we’re not going to speculate.”

 

why nothing more elaborate   ….and potentially more useful in the press release?

Two reasons:

–the release is, I think, a report to the public of a formal reply to a stock exchange query, which was something like, “Given the sharp recent rise in your company’s stock, do you have any reason to raise your estimate of March 2017 consolidated profit results?”

Nintendo is simply answering the question, and in its mind avoiding possible future trouble by saying nothing more.

–many companies, and Nintendo is one of them, are intentionally closed-mouthed.  In conversation with someone they don’t know well, they may start out saying something anodyne, or even intentionally misleading.  They want to see if their interviewer has enough professional knowledge, and has studied their company in enough depth, to be able to challenge them.  Only after an analyst has passed one or more of these “tests” will the company begin to answer questions in a fuller way.  If the analyst flunks, the host is insulted and the analyst is written off as a waste of time.   The interview may still last, say, an hour but the conversation will remain on a superficial level.  This press release is part of the same mindset.

– What stocks to invest in

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