( By Rich Bieglmeier) iStock had some success using Google Trends to predict iPhone 5 sales accurately during its first weekend of availability. Wall Street might not have been so disappointed with more than 5 million smartphones sold if they just read our forecast of 5.1 million.
The next hot thing is going to be Nintendo's (NTDOY) Wii U. CNBC's Consumer Nation believes the video game console is likely to be one of the hottest gifts this upcoming holiday season. Pre-orders have sold-out already, probably due more to short supply than demand, and full release is scheduled for November 18, 2012 in North America, November 30, 2012 in Europe and Australia, and December 8, 2012 in Japan.
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Since we got lucky with iPhone 5, iStock figured we would return to the well to see what Google Trends tell us about virtual demand for Wii U, and how it might impact NTDOY's price.
We used the keywords Wii, Nintendo, and Wii U in the USA, Canada, Germany, the U.K., France, Australia and Japan to make side by side search volume index comparisons. Nintendo and Wii U might not be as popular as the original version (see table below) if web searches are a proxy for interest.
Much like reduced search trends, shipments for the first six months of 2012 are running at their slowest pace since its launch, increasing only by 0.7 percent. Some of the lag could be due to pent up demand for the release of the new product and a difficult global economy. iStock feels competition that didn't exist in 2006 from smartphones and tablets with game apps, and HD ready Xbox and PlayStation 3s are eating into the average home's gadget capacity.
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Back then, Nintendo shipped 3.19 million Wiis between its first day of availability - November 19 – and the end of the year. Breaking out the calculator and applying the latest Google Trends, iStock is putting the target at 2 million Wiis sold by the end of the Christmas shopping season. The company is forecasting 5 million by March 2013. If Google Trends hold, then we see Wii U sales closer to 3.75 million by March 13, but a lot can happen between here and there.
|2006 Peak||2012 Post Wii U Announcement Peak|
|Wii||Nintendo||Total||Wii||Nintendo||Wii U||Total||% Change|
In 2006, NTDOY's stock more than tripled in price from $25 to $78 within a year. If Wii U can jumpstart shipments, at $299 and a cost of roughly $180 to make, gross income in the first 4.5 months could be in the range of $446 million at our forecast and $595 million based on Nintendo's robust guidance, none of which includes games and accessories which will run in the millions.
At our run rate of 1.75 million units per quarter and a bump for the holidays, 2013 Wii U sales could reach 8 to 9 million – up 8 percent to 10 percent from 2012's run rate. At an average selling cost of $312 (assuming 75 percent Wii U and 25 percent Wii U Deluxe), that's roughly $1 billion in gross income using a 42 percent gross operating margin achieved by the original Wii. For the first quarter of the Wii's availability, operating income as a percentage of sales ran at 23.4 percent, meaning operating income of 58 cents per share at 8 million Will U's through 2013.
Overall, iStock feels Nintendo's (NTDOY) could post operating income of around $1.75 per share for fiscal 2013. Toss a 16 P/E on the stock as we believe revenue have a chance to increase by that amount and the stock could – COULD – trade for $26 and change by this time next year.