Nintendo and Disney Are On A Collision Course
This is an update of my original Nintendo deep dive.
Nintendo’s market cap recently crossed $100b in market cap valuation. This makes them the 7th largest Japanese company in the world, with Toyota and competitor Sony being the top two at $250b and $150b valuations respectively.
I believe that crossing this milestone puts Nintendo in striking range of Disney, valued today at $170b. Both businesses manage some of the world’s most valuable entertainment IP, spanning movies, theme parks, and video games. Both businesses generate a flywheel effect through their brands that develop loyal and sticky customers. But Nintendo’s core business, video games, is more profitable and requires less capex than Disney’s, positioning them to grow more free cash flow per share in the long term. Let’s take a look:
Disney LTM
Gross Profit Margin: 36.7%
Operating Margin: 14.5%
Net Margin: 6.1%
2024 CapEx: $5.41b
Nintendo LTM
Gross Profit Margin: 60.1%
Operating Margin: 25.3%
Net Margin: 25.9%
2024 CapEx: $113m
One key difference is that Disney owns and operates its Theme Park business, but Nintendo licenses their IP to Universal for their parks. While this de-risks Nintendo from operating expenses, it does limit the direct revenue upside that they can generate from this business. For both companies, park sales build momentum throughout the rest of their businesses, of which Nintendo’s is more profitable.
Nintendo’s first and upcoming second movie are in partnership with Universal, in which Nintendo finances 50% of the budget while Disney creates and publishes their own movies. Similarly, Disney is set to benefit more from Box Office sales, while Nintendo benefits from its more profitable momentum.
It’s important to note that Disney is massive for a $170b company, valued at a 30 P/E ratio vs Nintendo’s 45. Disney generated $91b in sales last year vs Nintendo’s $11b. They are on another level in terms of scale. But Nintendo’s fundamental advantage over competitors is their team’s ability to create fun and unique experiences, which carries through to their IP. Consider that the #2 movie in 2023’s Worldwide and US Box Office was The Super Mario Bros. Movie, and Disney titles failed to reach the top 3. Nintendo subsequently saw a 1.3x increase in sales of evergreen Mario titles, some of Nintendo’s highest margin games.
Nintendo has announced 2 movies that are set to launch before 2030, along with a new theme park location and additions to their existing ones. But more importantly, the upcoming Switch 2 launch will enter Nintendo into a new growth cycle, which I believe puts them on a collision course with Disney.