After another disappointing holiday season and continuing struggles to market its Wii U home video game console, Nintendo plans to buy back approximately 10 million shares, or 7.8% of its outsanding stock, in a $1.2 billion buyback (125 billion yen.)
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This accompanies news that CEO Satoru Iwata will take a 50% pay cut following poor financial results.
Iwata previously cut his salary by 50% in 2011 following disappointing 3DS sales which spurred a markdown in the price of the console from $250 to $170. The Wii U has seen its own $50 price-cut, and more price slashing may be necessary to revive or salvage the console.
The Japanese game maker slashed sales forecasts for its Wii U home console and 3DS handheld earlier this month, leading to a sharp drop in Nintendo shares. Net income for the company fell 77 percent in the third quarter to 9.6 billion yen.
The stock buyback is aimed at rewarding shareholders in the absence of profitability.
In the nine months ending on Dec. 31st, Nintendo sold just 2.4 million Wii U units compared to 4.2 million Sony PS4 units sold since its Nov. 15th debut.
In fact, since 2007 Nintendo has lost 80% of its value according to Bloomberg.
The disappointing sales figures may not force Iwata to step down anytime soon, as some have urged, but the CEO is hinting at the possibility of real change for the future of the Japanese game maker.
“The Wii U isn’t in good shape,” Iwata said. “That’s the presumption we have as we consider reform.”
On the bright side, Nintendo remains in a good position for a buyback and has the resources to plan its next move, whatever that may be.
With $8.6 billion in cash and equivalents on hand and no debt, Nintendo has room to maneuver that even its rivals may not. Despite excellent PS4 sales, Sony remains bogged down by a lackluster electronics division, with Moody’s downgrading the company’s credit rating to junk status recently.
Nintendo may be facing a crisis now, and there may be no bright future for the Wii U, but Nintendo’s financial position is not as precarious as many of these numbers would have us believe.
Nintendo faces an uphill battle in 2014 as it continues to struggle both against Sony and Microsoft, as well as the growing mobile games market. Many analysts and critics are urging the Mario creator to bring their first-party IPs to mobile, claiming the company has been too slow to adapt to a changing industry.
Whether that move would save Nintendo is up for debate.
I would pin the likelihood of Nintendo abandoning its hardware business as very low for the time being, and certainly filled with risk. Without abandoning hardware, a serious move into mobile seems doubtful.
As dismal as all of this sounds for the game maker, one miss with the Wii U does not mean the company has no future in proprietary hardware and software. No matter the lure of mobile in the short-term.