Ryan O'Connor from Crossroads Capital discusses Nintendo, inflection investing, Japan's corporate governance reforms, the complexity of financial reporting, and the potential partnership between Nintendo and Comcast. They also explore portfolio management challenges, the state of small and micro-cap companies, the importance of quality and long-term thinking in investing, and analyze the Google Adtech trial and its implications on the market.
Nintendo's upcoming release of the Switch 2 and planned normalization of software releases could lead to increased earnings and equity value.
The Switch 2's higher-powered hardware will attract more third-party games, enhancing its value proposition.
Increased engagement and user base resulting from Nintendo's expanded software release schedule will contribute to the company's overall value.
Nintendo's commitment to improved corporate governance aligns with Japan's reforms, making it an attractive investment.
Owning a Nintendo Switch provides unique value in the gaming industry, with exclusive games and flexibility for both console and handheld play.
Deep dives
Normalization of First Party Software Releases
Nintendo's first party software releases have seen a significant drop over the last two years, but with the upcoming release of the Switch 2 and the planned normalization of their software release schedule, there is a strong potential for an increase in earnings and equity value.
Expansion of Third-Party Games on Switch 2
The Switch 2's higher-powered hardware will allow Nintendo to attract more third-party games, which were previously unavailable due to hardware limitations. This expansion of third-party games will provide a significant boost to the Switch 2's value proposition and make it more competitive with other platforms.
Increased Engagement and User Growth
As Nintendo ramps up its software release schedule and offers a wider range of games, it is expected to increase engagement among its user base, leading to higher tie ratios and greater software sales. This growth in engagement and user base will contribute to the overall value of the company.
Alignment with Japan's Corporate Governance Reforms
Nintendo's commitment to improved corporate governance and alignment with Japan's ongoing reforms can provide an additional tailwind for the company's growth. This aligns with the government's push for greater transparency and accountability in corporate practices, making Nintendo an attractive investment in the evolving Japanese business landscape.
Understanding the Value Proposition of Nintendo Games
The podcast episode discusses the unique value proposition of Nintendo games in the gaming industry. While Sony and Microsoft offer powerful gaming systems, the Nintendo Switch provides a differentiating factor with its exclusive game titles. By owning a Nintendo Switch, gamers can enjoy the same popular games available on other systems, as well as play Nintendo's unique games. The flexibility of the Switch, allowing for both console and handheld play, further adds to its competitive advantage in the market. The speaker emphasizes the significant consumer value in owning a Nintendo system alongside other gaming platforms.
Exploring the Technical Advancements of the Nintendo Switch
The podcast episode delves into the technical aspects of the Nintendo Switch and its upcoming successor, the Switch 2. According to developers who have seen the Switch 2 in action, the hardware is estimated to be five to eight times more powerful than the original Switch. The partnership with NVIDIA has enabled Nintendo to utilize DLSS technology and ray tracing, resulting in games that look and feel on par with current-gen systems. The Switch 2's compatibility with older games and the enhancement of their graphics using AI technology adds to its appeal. The speaker highlights the potential for improved gameplay, graphics, and overall user experience with the upcoming Nintendo system.
Assessing the Financial Potential of Nintendo's Switch Platform
The podcast episode analyzes the financial implications of Nintendo's Switch platform. The speaker acknowledges the company's strong lineup of third-party games and the potential for increased revenue from these partnerships. With the introduction of the Switch 2, Nintendo aims to capture a portion of the sales currently dominated by PlayStation and Xbox. By estimating conservative figures, the speaker suggests that the introduction of third-party AAA titles to the Switch platform could generate significant incremental cash flow. Furthermore, the speaker alludes to the positive impact of the Nintendo Switch online service and other entertainment earnings engines. Overall, the speaker sees the future potential for Nintendo as promising, positioning the company for substantial equity value creation.
Investment Opportunities in the Ad Tech Space
The podcast discusses a potential investment opportunity in the ad tech space, specifically focusing on Magnite. The discussion highlights the possibility of Google losing an antitrust case and the resulting impact on the ad tech industry. If Google loses, there could be a significant amount of profit pool available for other players in the industry, including Magnite, the market leader in ad tech. The potential upside for Magnite is massive, with the leaps (options) offering a 100x upside by 2025. The podcast emphasizes the need to consider the timing and potential secondary effects of the case, as well as the importance of qualitative insights in making investment decisions.
Challenges for Small and Micro Cap Investors
The podcast also explores the challenges faced by small and micro cap investors. It highlights the disappearance of active managers in this space, leading to a lack of capital that drives price discovery. The decline of small cap investing and long-short hedge funds is attributed to the performance and value delivery issues faced by many funds. The discussion raises questions about the future capital inflow into the small and micro cap space and the opportunities it presents for funds like Crossroads. The importance of qualitative insights and concrete events as catalysts for value unlocking is emphasized, along with the need to focus on companies with a strong moat and predictable earnings.
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