For the last two weeks, millions of gamers have been wandering across, over and under Hyrule, the mythical kingdom in the Legend of Zelda series of games. The latest installment, Tears of the Kingdom, is a rip-roaring success both critically and in terms of sales.
The shares of Nintendo (T:7974) (NTDOY) don't yet reflect that. The shares are up 8.3% so far in 2023, far behind the 14.9% advance of the broad-market Topix in Tokyo trade. The Dow-like Nikkei 225 is just off 33-year highs, up 20.2% in 2023.
The "Zelda effect" of The Legend of Zelda: Tears of the Kingdom, released May 12, will soon start feeding through to earnings. It sells for US$70 in the United States, and the equivalent in other currencies around the world.
It was the most-anticipated game of this year, and has delivered on that promise. Its inventiveness is being rewarded with rapid sales, with 10 million copies sold in the first three days alone. That makes it the fastest-selling Zelda game, a direct successor to The Legend of Zelda: Breath of the Wild. We don't have an update beyond that.
Zelda games have traditionally been niche, not the biggest sellers. For instance, Grand Theft Auto V from Rockstar Games, a subsidiary of Take-Two Interactive (TTWO) , has sold 180 million copies in the decade since its release in 2013.
The best-selling games ever, according to IGN, are Minecraft (238 million copies) and Tetris (520 million), although both come with an asterisk: Minecraft is an ongoing game that's simply updated for release on each new piece of hardware, and both the Minecraft and Tetris figures collate a whole series of related games. GTA V is the best-selling "traditional" game that you buy once for one system.
But we are talking degrees of massive success. A top-selling game continues to provide revenue for years to come.
Breath of the Wild has sold 29.8 million copies through the end of Nintendo's most recent fiscal year in March. It is No. 4 on best-selling games on the Switch, a list topped by Mario Kart 8 Deluxe at 53.8 million copies.
Tears of the Kingdom will surely surpass its prequel. I've been playing it, and it is an excellent game. Fans of Breath of the Wild will not be bored with the same world they found in that game, or disappointed with the sequel. It really does take all the best features of its predecessor, then builds on them.
Every now and then, a game comes along that captures the public imagination, seeping into popular culture well beyond the normal reach of videogame titles. Last year, it was Elden Ring that took a cult series -- the Dark Souls games -- added a splash of star writing power from Game of Thrones fantasy author George R.R. Martin, and exploded. It has introduced its studio, FromSoftware, which is notorious for making "difficult" games, to many new audiences.
Tears of the Kingdom is a bold iteration on Breath of the Wild, which itself virtually reinvented the "open world" game. Having created a world where you can wander off and do anything you want (cooking, solving puzzles, buying clothes, exploring, fighting monsters, and there's a story in there somewhere) in Breath of the Wild, the developers looked at how some players had experimented wildly with the physics of that game, and played into it.
Tears of the Kingdom lets you not only go anywhere, do what you like, but most importantly make anything you want. Twitter is abuzz with people who have concocted wild machines that look like they've stepped out of the Transformers series, or B-52 bombers of planes strafing Hyrule like a sequence from Saving Private Ryan. Or you can pursue the quests, and follow the game's narrative in order. It's a game that offers endless possibilities, and can survive as "fresh" for a long time as a result.
It helps that Nintendo's Switch console sold heavily during the pandemic. There are 125.6 million copies "out in the wild" as of the end of March. It is likely but not yet confirmed that Nintendo will release a successor at some stage next year. That could produce a whole new set of sales for this latest game.
Breath of the Wild was a launch game for the Switch in 2017, and Tears of the Kingdom may have originally been intended for a new Switch. Rumors of a Switch successor have swirled for the last two years, since the normal lifecycle of a console is 6-7 years. But the shortage of components such as semiconductors and the difficulties in shipping worldwide have derailed Nintendo's plans, and will likely ensure a longer life for the latest "next-gen" consoles, the PlayStation 5 from Sony (SONY) and the Xbox Series X and S from Microsoft (MSFT) .
The games industry has gone through a little bit of a lull after it became one of the few success stories of the early stage of the period when many of us were shut up at home. This year is seeing the release of multiple major titles that had their development delayed while "devs" had to work from home.
Nintendo is an odd company in an industry where people like to talk about "console wars" between Sony and Microsoft. Nintendo, which began life way back in 1889 making playing cards, just does its own thing. It rarely discounts its games, doesn't typically license its first-party titles for use on any other system, and is often willing to push the boundaries as to what people will accept as a playing system for games.
The Switch, as a portable system that also functions as a console plugged into your TV, set a new standard, in fact formed a whole new console category. It has sold extremely well despite being underpowered technically compared to a PlayStation or Xbox.
Whereas Tears of the Kingdom is generating both high critical ratings (it's scoring 95 out of 100 on Metacritic) and high sales, the Nintendo-inspired The Super Mario Bros. Movie wasn't much appreciated by movie critics (46 on Metacritic) -- but has still been a smashing success. It is the top-selling movie at the box office so far in 2023, with US$1.3 billion in worldwide gross. Nintendo is one of three producers of the movie alongside the distributor, Universal Pictures, a subsidiary of Comcast (CMCSA) , and the computer-animation studio Illumination.
There's fierce debate about how far the Japan rally in equities has to go, as I outlined on Wednesday. Nomura's new forecast raises its expectations for the Nikkei 225, which it believes can test 33,000 (from 30,916 today), while it anticipates the Topix can remain above 2,000 (at 2,145 today).
Nintendo is a good way to play any further rally, with multiple revenue winds behind its sales. Nintendo shares traded close to ¥7,000 in 2021, and rose above that when they set their all-time high of ¥7,320 in November 2007. (If you look at any historical figures, bear in mind they split 10-1 last year). They're currently at ¥5,943.
By the way, Take-Two stock is also worth watching. The company has hinted that the much-anticipated next installment of Grand Theft Auto will come out in 2024, since the company forecast net bookings of US$8 billion in its fiscal year through March 2025. That's up from its record annual high of US$5.3 billion for the year through March 2023.
What would cause a leap of US$3 billion worth of game sales?! We know the company is fairly advanced in working on "GTA 6" through leaked gameplay footage. But the game doesn't yet have a release date.
The other possibility is that Take-Two anticipates the acquisition of other studios. Its yearly net bookings were typically in the US$3 billion range until last year, when it bought the studio Zynga, which specializes in mobile games such as FarmVille.Still, we will get another Grand Theft Auto sometime soon, more than a decade after the last title came out. Take-Two shares would benefit from a serious revenue boost if, as seems likely, that is a hit on the same sort of scale. Meantime, we can get back to wandering around Hyrule aboard rafts, carts, rockets, and creations as elaborate as you care to make ...