Yet Another Value Podcast - Why Ryan O'Connor is bullish Nintendo $NTDOY

Episode Date: October 23, 2020

Ryan O'Connor, founder of Above Average Odds Investing and Crossroads Capital, discusses his bull thesis on Nintendo. Our discussion focuses on all of the optionality Nintendo has, including what would happen if Nintendo licensed their games to Microsoft or Sony, how Nintendo cold roll out a subscription style business, and the upside as Nintendo continues to expand their IP into theme parks, movies, and TV shows. We also talk about the company's mobile strategy and how the continued evolution of Mario Kart World Tour could lead to a huge hit.We also discuss his background and his investing style, including his big win this year investing in Gan.You can find Crossroads Capital 2018 Annual Letter (which includes its Nintendo bull case) here: https://bit.ly/34pKpSR

Hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Ryan O'Connor from the founder of Crossroads Capital, longtime kind of value blog readers will know him as the founder of above average odds investing as well. Ryan, how's it going? Good, man. How are you? Doing good, doing good. Hey, really excited to have you on the podcast. Let me start this podcast the way I do every podcast. And that's by pitching you, my guest. I've been a super fan of yours, as I was telling you before we start. recording. I remember above average odds, memos that you were posting seven or eight years ago, like extremely vividly. It was some of the best fundamental research I've ever seen on there. I know Crossroads Capital has been a great success as well. But, you know, when somebody comes on and says, hey, I've been a super fan of yours for eight years and I can still remember obscure investment thesis from five years ago, you know, that is the sign of somebody who really respect your work. So I am so excited to have you on. Appreciate you being on. And with that pitch out the hey, why don't you tell us a little bit about yourself and your background that led you to founding Crossroads?

Sure. Well, first, thank you. You're too kind. It's kind of wild to think back to the blog days. But that's fun. So yeah, so Crossroads, I started it about four and a half years ago, right or June, middle of 2016. You know, we run a kind of traditional value-oriented special situation. centric value-based hedge fund based off the Buffett model. And, you know, the long story short is we, you know, kind of our bread and butter is small and microcap growth businesses undergoing some form of value-enlocking change. That kind of fits in with the special situation bucket. And we kind of seek to find original insights into these ideas that, you know, kind of give us

an edge and, you know, with almost all of our ideas, we want to have a good idea of, you know, what's going to make it work and when. And, you know, for someone that focuses so heavily in the smaller, less liquid pockets of the capital markets, you know, we found, I think, a large part of our success over the last four and a half years is kind of insisting on a, you know, a hard catalyst that will kind of benefit from, you know, the liquidity driven flywheel that, you know, is kind of part and parcel of the current regime, so to speak. So we've tried to evolve to succeed, and, you know, we've had a lot of success, knock on wood.

And, you know, we hope to, you know, continue to do well. So I guess that's the quick and dirty. No, that's great. And we're going to talk about Nintendo today. So maybe outside of Nintendo, could you give an example of kind of something that gives that, you said the hard catalyst that gets that liquidity flywheel going? Sure. A great example would be a company called GAN, you know, kind of.

Oh, I know GAN well, yeah. He had Jeremy Raper on here. He was a big pitcher. I pass on them and I'm happy to talk why. And it's, you know, it's a four-baggers instead. So it's been killing me. But go ahead. You go ahead.

Yeah. So, you know, this was an example of a very interesting example in the sense that we started buying, I think it was in the fourth quarter of 2018, you know, when it was. I think it ended up being something like, you know, less than two-time sales and, you know, a single-digit multiple on forward free cash flow. And, you know, we got to know the executives and, you know, it was very clear that it was a very high-quality business with, you know, a lot of potential to kind of build a durable mode. At the same time, you know, over the years, I can't tell you how many times I've witnessed, you know, basically how broken the discounting mechanism. is in the kind of the smaller, less liquid fare. And so, you know, given this reality, you have the indexation vortex and, you know, all of

these structural factors, you know, radical monetary policy that is kind of, you know, pulling capital away from, you know, call it our bread and butter, you know, the non-indexed, you know, a liquid owner operator run great businesses. And so GAN was, you know, fit that kind of mold. But, you know, over the years, we have seen, you know, kind of general fact patterns and setups like that where, you know, by and large, the company executed, you know, there were, for all intensive reasons, you would have expected the stock to re-rate, give them the earnings growth, kind of intelligent capital allocation, whatnot. But because, you know, in certain situations, you know, maybe the owner owns 30% of the equity, you know, it makes it uninvestable from a, you know, an index perspective. And, you know, the kind of ultimate result of that is a stock that keeps on getting cheaper. So, you know, regardless kind of a fundamental information. And so, you know,

there, I could go through 20 examples of how kind of broken and the discounting mechanism is. But the way we kind of evolved to succeed was ensuring that, you know, when I say a liquidity driven catalyst, you know, that there with every idea, not only do we know what's going to make it work and when, but typically this has to do with finding setups where the institutional barrier, you know, where there's massive demand institutionally speaking. I mean, so from an online sports betting, I casino standpoint, you don't have to be Einstein to realize that, you know, this, you know, the scarcity of these, you know, businesses and the quality of these businesses are going to be something that, you know, the sell side and the street is going to trip over and drool for.

it was a function of, you know, ultimately gaining not only conviction and, you know, lots of qualitative insights around the business itself, but finding, you know, we wanted to know, we wanted to make sure that there was a hard catalyst there. And in this case, you know, because it traded on the, you know, basically the London version of the peak sheets, you had a scenario where the demand, the avalanche of demand for the stock, I think, was somewhat self-evident. But because of technical factors, you know, the stock kind of languished and this crazy, you know, is crazily mispriced. But, you know, we also knew kind of a hard date or, you know, the approximate date in which what you would see would be an uplisting, you know, an expansion

of the float, basically taking the actions required so it could get swept up in the slipstream of the liquidity kind of indexation vortex. So that's kind of the art of it. It is buying where in the structure, you know, fish where the fish are, where everything's hated and the, you know, price to value gap is as wide as possible. But then, you know, that's not enough.

I think, you know, earlier in my career, if you knew why it was mispriced, if you knew, if you've done the work, you knew it was mispriced, you could, you know, confidently explain why that was, you know, you could kind of sit back and relax, you know, relatively self-assured that price discovery would happen and, you know, the, you know, the discount to value that you had identified would, you know, kind of quickly close. Well, you know, things have started to change in

terms of market structure. And so, you know, we just kind of weren't willing to take those chances anymore. So with GAN, we just had a very straight line of sight as far as, you know, not only what it should earn, you know, in terms of its normalized earnings power and that it's kind of inherent potential, but we also knew that, you know, as those barriers to investments collapsed and the business kind of hit its stride, that you were going to have basically an avalanche of demand for the shares try to squeeze itself into this relatively small liquid float. And good things usually happen to stock prices, you know, when that dynamic is there. And, you know, by and large, it has played out, you know, beautifully. So, you know, I think it was a four-bagger heading into

March of this year. And, you know, I think it dropped. I think it was, you know, I can try to think split adjusted. It was, you know, something like, you know, dropped another 75 percent again. And, you know, when we were, you know, it was pretty clear early on, you know, the implications with respect to how corona and the pandemic were going to trickle down and, you know, how GAN was, you know, not only not going to be hurt or impaired by this, you know, change or dynamic that, you know, its underlying earnings power was actually going to, you know, accelerate, you know, demand or market adoption was going to be pulled forward. And, you know, this was going to be objectively a very good thing for the business.

And so, you know, this is kind of the beauty of market environments like March, you know, and it just proves the point that, you know, these are the times we live for as investors where, you know, we were buying at, you know, just a ludicrous valuation for, you know, for a truly great business that was well run that we knew was going to, you know, basically deal with a violent convergence of price and value as these technical factors played themselves. out. So that's pretty good. That's kind of a pretty good case study for thinking about how we didn't, you know, we stayed, we still stayed in our bread and better, our bread and butter space. But, you know, we did it in a way where I think the structural factors, you know, that have been

kind of hurricane force headwinds to all things, small value. It allowed us to kind of, you know, if not dance in the rain, kind of seek shelter from the storm. And it's been a very, you know, of all the things that when I think back that in terms of how we've kind of adjusted our swing and improved our process, that is one of them that I think is one of the largest drivers of why we've been able to do quite well in a period where, you know, has, you know, under any kind of reasonable basis, been a very difficult time for small value investors like us. So GAN was publicly traded, as you said, kind of pink sheet, pink sheets London. Nintendo, obviously, they've got a U.S. like OCC stock, but they're, you know, they're Japanese listed. Are you finding more value outside the U.S. than in the U.S. or like in companies that could at some point flip from outside the U.S. to in the U.S.? So, yeah, you know, it's kind of, it's kind of odd. So, you know, we found a few very attractive ideas.

where, you know, the majority, either the revenue, the sources of revenue and profit are global. You know, it's based, you know, outside of the U.S., but, you know, the business for all intents. I mean, Nintendo is an example of this where, yes, it's a Japanese company, but in terms of its earnings power, you know, Japan is a, you know, a more minor, you know, piece of it. There's been a couple of Australian companies, for example, that have been, you know, large positions and winners that are either, you know, global or increasingly global or entirely have the majority of their revenue and profit based in the United States as well. So, you know, it's kind of a funny thing where, you know, people will look at, if you were to look at our various investments and, you know, they're domiciled all over the world. but, you know, the majority, in most cases, the majority of their, you know, earnings power is based in the United States. And they are much, their sources of revenue and earnings are diversified far beyond their country of origin.

And then, you know, I get, I guess just building on that. So one of the things, there were a couple things with Cam, but one of the things I had trouble with was the argument was, look, it's already publicly traded, right? It's just on the London Stock Exchange, and they're just going to bring it over to, or I guess it was AIM, but they're just going to bring it over to the U.S. And when they do that, it's going to get four times the up-lusting because, you know, draft King's trades for a 10x revenue multiple and, you know, Robin Hood traders are going to get excited. And actually, that's exactly what happened. But like, in my mind, every time I looked at it, I was like, markets can't be this inefficient, right? Like literally. I used to think that too, you know, but like I think that is, these are kind of.

the, I think this is the fallout from the structural factors that have, the things that have changed market structure since, you know, the financial crisis. You know, I think the, of all the things that are different, it's, you know, the, the, within these, again, the smallest, less liquid pockets of the markets, you know, the, the type of naming like, you know, I think that the enterprise value for GAN when I was buying it, uh, I believe was, you know, something, like, you know, 40 or 50 million dollars back in 2018. And, you know, when I, when I started to really drill down into, you know, how kind of radical monetary policy in conjunction with the rise of indexation, you know, the kind of the fallout from those two factors, you know, I started

to realize that, you know, let me put it this way. The, it seems. there's been a variety of things we found that, you know, it's kind of a rub your eyes check again thing. Can this be real? You know, why, you know, just things you don't trust because they seem so obviously, you know, just gross to me. It's like finding a $100 bill, you know, on the floor. But, you know, as I, part of being in this space and operating in this space for so long or within these smaller niches, you know, you see there were so many things that I have witnessed that just blow the bond, I mean, just may, are so nonsensical and frankly ludicrous that I, you know, I lost faith in, you know, the efficiency of, you know, the space and situations like these quite a long time ago. And I've seen businesses that, you know, are well run, you know, very high quality that crush, you know, the, I don't want to say expectation, because, you know, there's not a ton of coverage, but where objectively, the.

business, you know, has not only did well, but has done well, quite a bit well, you know, better than what the, what management had laid out, you know, something that you'd expect the stock to go up 50% and watched it proceed to get cut in half. Alternatively, I've seen stocks that because they are in an index with relatively, you know, tight floats, you know, where the management are crooks, the business is, you know, in all probability, worthless, you know, come into a print and you'd read the print and you'd think the stock would drop 90%. And because of an update and its index, watch that stock pop 20 to 30 percent based upon, you know, simply its inclusion in a, you know, relatively largely, you know,

used index, you know, proxy. So when you see enough of those type of things, happen again and again and again, you know, it just, in some sense, it didn't surprise. I mean, it would have surprised me a few years ago in March or, you know, say, towards the back half of 2019, not so much, which is too bad, but, you know, I mean, it's actually, it's a wonderful thing, you know, from a long-term investment perspective. But it is definitely something weird and knew that, you know, if we were to go back, say, you know, when I started my blog in 2009, 2010-ish, you would never have seen. And then, you know, you have also part of one of the secondary effects of the rise of indexation is the collapse of the traditional, you know, asset, you know, equity

management fund industry. And, you know, frankly, good riddens. But, you know, the people that historically were there to kind of drive price discovery have just had the, you know, they're head handed to them and, you know, the closures have continued to accelerate, you know, the small and microcap, you know, mutual funds and, you know, even hedge funds have done so poorly because of these headwinds that, you know, it's kind of turned into a negative, you know, vicious feedback loop where, you know, I don't know what's going to break it. I mean, I know a lot of value investors out there are big fans and believers in the kind of a reversion to the mean as far as small, you know, that small value will once again have it stay in the sun.

I'm much more skeptical just because I don't, you know, I think comparing the world in which, you know, looking back, looking at past data in the circumstances, the nature of our economy, the, you know, the fact that, you know, post-2007 you have these, you know, various other factors like radical monetary policy, I just, you know, I think I've identified why the kind of all this craziness has happened. But the question that I have for the big believers in the reversion of the mean theory is, is what's going to change? You know, if you go down each of the drivers that I think are, have determined where we sit today with these kind of broken markets, the lower we go, you know, I haven't, at least I haven't come across a coherent answer.

that isn't basically amounts, basically they all amount to some version of we're at a historical spread, you know, it's an extreme relative to large growth and therefore that spreads compress until I think these structural market structure issues are dealt with, I'm not so sure that's going to happen. So, you know, again, one of the ways we've kind of evolved to succeed is, you know, hope is not a strategy. You know, I don't want to take the chance that that, that what if that reversion doesn't happen, the way we deal with that is by finding things like GAN, where stepping in, you know, we know, basically it plays to the current regime in a way that leverages, you know, we kind of leverage both ends of the issue, you know,

the stocks that we're buying when they're outside of that indexation vortex and, you know, the beneficiaries of capital flows. we benefit on the buy side of the valuation side. If we can find something that we get all that benefit here over to the left, and then we know with a relatively high degree of certainty that they can start to party on, if you will, in terms of the capital flow fly wheel that is the primary determinant of market returns these days, then we kind of get the best of both worlds and I can sleep at night.

And I don't have to worry about, you know, basically history repeating for, you know, hope to my investors and, you know, for ourselves. So that's kind of how we deal with it. You've used the term radical monetary policy a few times. And if I think back to the above average odds days especially, I remember like the input capital, which was a, I guess it was royalties on, royalties on agricultural products, if I remember correctly. That was it. And a lot of them were, I think a lot of the ideas, like, I remember a couple energy companies. Like, I think there was a Yukon mining company. Yeah, never listen to me on energy.

Dagan? Yeah, I think with energy, it's been probably seven or eight years since I had been kicked in the face enough to realize that, you know, this wasn't my sweet spot. Okay. So I guess that was my question. So a big part of your evolution, it sounds like, has been moving on from especially energy, but a lot of these more heavy assets. and mineral focus companies that you think would be beneficiaries of inflation, but

100%. You know, it's funny. It's like, you know, it's the natural, you know, as a Buffett file, if you will, you know, the or, you know, Munger, maybe one of my favorite human beings of all time, you know, this is their own path. And, you know, it's funny that it took me so long to kind of fully internalize the depth of that wisdom, you know, energy, for example. When you're looking at an industry that is basically a treadmill to hell that has negative returns on capital over a full cycle, where management is

generally, you know, garbage where there's a cemeteries of information that, you know, as a generalist, you can't really, it's largely impossible to appreciate, you know, I could go on and on and on in terms of why I find, you know, a lot of these asset-heavy commodity-driven, you know, terrible businesses, uninvestable, you know, in fact, input was a reaction to these kind of early learnings. You know, I was trying to be cute and split the difference where you could get that exposure towards some of the factors that make energy at least kind of from a macro perspective and attractive, you know, or can be an attractive bet, but without sacrificing the qualitative elements that I think are foundational to, you know, compounding wealth consistently at

above average rates over time. So eventually, you know, it's just not worth the heartburn. So, you know, I started the day I started to cut out, you know, what we can kind of just broadly call bad businesses and bad industries was the days that, you know, my returns. It was a very, a very good thing. And, you know, it's one thing, even to this day, like Value Investors Club, it astounds me how many energy names are written up. I mean, utterly astounds me. If you go back and you read every single one, I bet you the average return on an energy name in VIC over the last 15 years is probably negative 50%. I was going to say higher than higher. Yeah, right, right. It's unbelievable. And, you know, for the last five years, it's like, holy, you know, why? You know, like, why of all the

places you can fish in, you know, and pick your spots. Why in God, why would you subject yourself to this? I mean, it's just, you know, I kind of laugh at it now, but for a blog called Above Ever Jobs to pitch, you know, four or five energy names is deliciously ironic. So, nonetheless, you know, this is, you know, this is the game you learn. And that was some of the, it was ultimately, it didn't feel this way in the moment, but it was some of the cheapest tuition I ever got. And it was, I think, a critical, not only learning experience, but has been essential to kind of making me the investor that I am today. Let me ask you a slight pushback on that, because I agree, like, you know, a lot of the oil and gas I've seen has been,

hey, this company has, you know, they've got a huge oil field out there. And if they can just develop it and the oil is there and they don't run over costs, like you're going to make a good return provided oil prices don't go down right but like I do think there is something and I've asked this a lot like the past five years I think if it's taught anyone it's taught a lot of investors hey if you have a good business buy it don't sell it at any price no matter what and you're going to return 40% per year especially if it's an online business you know and actually if it's an online business it almost doesn't matter at this point because like I didn't think overstock was a very good business and that thing's gone bonkers since they got a new CEO and like COVID and all this so do you worry that

like I think something like GAN where you buy something that trades at a old line multiple and it should trade for a new world multiple and it's just in a backwater of the liquidation like that's always going to work. But do you worry that the learning like, hey, don't look at energy or hey, like what you really want to buy is something online with infinite scale with like kind of a flywheel. Do you worry that's more a function of the moment and extremely low interest rates that can bring, you know, if this thing's going to be dominant 20 years in the future but the interest rate's 10%. You don't really discount that. If the interest rates 1%, great, we can bring 20 years forward. Do you worry about that? Oh, 100%. And to be clear, I think

there are just as absurd examples of excess or things taking to the extreme, you know, on the other side. You know, like anything, I think it's about determining, you know, I'll give you an example. So we took a big stake in a company that looked, you know, by any basic values, metric, preposterously expensive. It was a little over a year ago called after pay. Yeah, after pay. It was based in Australia. Okay.

And, you know, this is, this is, it's kind of like Nintendo and where there's a large vocal contingent of, you know, smart sounding bears that, you know, it just mystifies me how radically wrong their analysis is and the frame in which. they view this business, you know, on multiple levels. I mean, you know, most of these guys don't even have a basic understanding of the unit economics, and they oversimplify things. And, you know, but, you know, so here's a stock that, you know, is, you know, will never look cheap, you know, based on traditional, you know, kind of gap-based metrics because it expenses its growth through its income statement. And, you know, there's a variety of other hidden,

you know, layers of value here that can't be quantified through the rear view. it's not going to show up in book value or, you know, the traditional things that are going to typically interest investors or value-based investors. So, you know, the interesting with afterpay is, you know, we had a friend kind of give me a heads up on it. We kind of started to dive into the diligence, you know, when they had entered the United States. A mutual friend knew the guy that helped launch their U.S. business. So we were able to get him on the call and kind of walk through their unit economics. There's various moving pieces here.

But the whole point was, is, you know, if you're dealing with a marketplace, say a two-sided marketplace, for example, you know, it's essential to figure out not just the value proposition to both sides of the network, but to, in this case, get an idea of, you know, things like, you know, a lifetime customer value, you know, running the analysis in terms of its capital efficiency and how it would scale if you understood the unit economics and you could basically put through the, you know, get an eye for customer acquisition cost and lifetime customer value. And when you put the pieces together, I saw a business that through the rear view is trading at 40 times sales, but, you know, something like, you know, one and a half times free cash flow

on a normalized basis five years, assuming none of the platform option. is realized. I mean, you know, largely various, you know, pretty, I think, draconian assumptions. And, you know, I remember the guy that had initially turned me on to it. I mean, if the stock was like 20 at this time, now it's over 100. But, you know, it was one of those things where it was kind of like Atlassian, where it's capital efficiency and its scalability is just kind of rub your eyes, check again, is this real? And we started, you know, basically at the rate it was acquiring customers, you know, what it's, you know, what that, you know, or what the steady state earnings power would be looking out a few years based on very, very, I mean, almost preposterously conservative assumptions in terms of its user base. And, you know, you were looking, I mean, let's just put it this way. It was, you know, a very large multiple of its current price. So, you know, I think most. of the things, I think there's a lot of froth, but I do think that, you know, you just have to focus on economic reality, not simple heuristics. You know, you have to understand the business. And, you know, so yes, I worry that things are, I mean, you have to be flexible. And, you know,

as you noted as when this call began, there's this wild dispersion between asset classes. And even within the high flying, you know, call it software tech platform, you know, what's hot right now. there are wild discrepancies between, you know, there are lots of high valuations. I think some are way too low and some are way too high, but, you know, it's just not, you know, using a, I think you have to be very wary of, this is why I hate the distinction, but, you know, growth and value. I mean, they're the same thing at the end of the day. And what I'm looking to do is, you know, figure out what a business is worth. my ability to understand what its normalized earnings power can be with a relatively

predictable kind of a tight range of future outcomes is very, very important. And so that's what I focus on. And I try and honestly block out, you know, the whole growth versus value. You know, like, you know, it just, it does nothing but kind of poison your psychology and, you know, kind of scatter your ability to focus on what matters, free from the peanut gallery or, you know, oh, this looks expensive. This isn't a value stock. Well, bullshit is, it's not a value stock.

You know, I mean, like, you kind of get into that whole thing. So, you know, there are exceptions. I mean, while the vast majority of what we own, we've bought in a statistically cheap sense, you know, it was a certainly was statistically cheap and it was very high quality. And, you know, that's a beautiful combination. But, you know, given the way, I mean, if you look at the business. that have created the most wealth over the last 20 years, you know, the ones that have compounded shareholder wealth at the highest rate, you know, you would never, I mean, none of, they never at any point in time ever looked, you know, statistically cheap based

on trailing 12 month math, you know, gap accounting will never capture what these businesses are doing in a way that makes sense under kind of that old framework. So, you know, I think you have to be, I think being overly simplistic in dog, about, you know, only buying statistically cheap stocks through the rearview or, I mean, I think that is a very costly thing. At the end of the day, I want to find a business that I can buy today that is, you know, valued at a, you know, a tiny fraction of what I think it will be worth five years from now. And I think to do that right, you can't let, you know, kind of certain dogmas or articles of faith, you know, of say the Fama French school or,

you know, you just can't let that stuff wiggle its way into your thinking. And you are, I think it would negatively affect your ability to do what you're here to do, which is find grossly mispriced stocks and hold them long enough to realize the value of the insights you've uncovered. No, that was really awesome. Okay, so let's turn over to Nintendo. You know, I'm sure most listeners are familiar with Nintendo. You know, this is the company that made S&ES, Mario, Zelda, So I don't think we need to do background on this company.

They're one of the most beloved companies in the world. So rather than give background, why don't we just dive into, you know, I know you run a concentrated portfolio. I read your 2018 letter, which I'll be sure to link in the show notes. You're hugely bullish on Nintendo, right? So why don't we dive into, why are you so bullish on Nintendo? You know, it's like, you know, why do you love your mother? There are so many reasons. It's hard to know where to begin.

You know, and that might sound hyperbolic, but I genuinely believe. believe it is an extraordinary company that remains extraordinarily mispriced. But the long and short of it is, I think Nintendo is at a pivotal crossroads, if you will, where through the past, both in the industry and Nintendo in particular, you had this hit-driven cyclicality to the business model that made accurately underwriting you know, what Nintendo's earnings power will be, you know, a few years in the future, by and large, impossible. And the result of this was a discounted multiple. So, you know, one of the things that initially drew me to the story and kind of the original insight that I think is the primary

basis and the foundation of any intellectually honest Nintendo thesis is the, you know, the dedicated console segment and how that business has been transformed from this kind of hit-driven roulette scenario where, you know, every five to seven years, they would, you know, come out with a we or a Wii U, you know, have a quick prayer session and, you know, hope kind of for the best that they can bootstrap sales of that system, you know, with their own software to a basically a software platform that is, you know, based on an iterative hardware model a la Apple and its iPhone. So, you know, the idea is basically that, you know, like with smartphones, new versions of the switch will be backwards, you know, compatible with all games released so far while

becoming, you know, more powerful and feature rich over time, much like if you were to compare the original iPhone in 2007 to hell even an Apple Watch today. But, you know, the net result of that is not only will that tend to keep customers locked into Nintendo's, you know, entertainment ecosystem and buying its exclusive first-party titles and, you know, making the business materially more profitable with instead of, you know, highly volatile revenues, very stable, very resilient, recurring revenues at increasingly high margins. And, you know, that in and of itself, I think, is a profound game changer. You know, basically instead of its installed base of users, every six years, you know, dropping

to zero where they have to go ahead and reacquire all those customers again and then pray that their games will, you know, kind of bootstrap, you know, that console system to, you know, kind of a minimum viable scale of, you know, users in terms of the installed base, you know, all of those issues and all of the headaches and problems that were kind of a natural result of that dynamic have gone away and, you know, looked at a different way. I mean, basically saying the same thing in a different way, the switch family of systems, I believe, is by and large, forever, you know, not forever, forever, but, you know, it should be perpetual. we'll see this, you know, there is no more cycle.

I think the idea of next-gen cycles, specifically with respect to, you know, the Switch and what Nintendo is doing strategically is kind of an incoherent term that, you know, is based on an obsolete paradigm that makes no sense looking forward, if that makes sense. No, I think that was great. And I think you hit a lot of points in there, but if I summed it up, and you hit on this a little bit. When you look at Nintendo today, you almost see Apple's transition from, let's call it, 2014 to 2018, where in 2014, all the profits is hardware. Now, they did have, there was a really nice, it was a really nice smartphone that was light years ahead of everyone. And like,

when you upgraded iPhone, you got to take all of your stuff and your contacts and functionality with you. But all the profits was hardware to today where I think like a third of their profits come from the services, you know, just the app store that app or acts. And in Nintendo, what you see is, you know, most of the profits was, hey, we released the Wii, we released the Wii, everybody buys the Wii, we get that, and then we'll get profits from selling our games on it. What you see going forward is I get a Switch and then I sign up for Switch Pass, $10 per month or something. All my games are on there. I'm going to pay that $10 per month stream forever. And by the way, at some point, if I want to buy Call of Duty or Mario or something through the Switch Pass,

Nintendo will also similar to the App Store take attacks on that. Am I kind of thinking about that in something? Yeah, I mean, I think that's a part of it. You know, there's a couple moving pieces. You know, at the end of the day, you have, you know, the Switch itself. So one of the unique things about the – and actually, let me see if I can find something. So, you know, historically with consoles, you know, you had kind of custom designed, you know, parts that were made specifically for, you know, each, you know, individual system. So you even still see this with, you know, the PS5 and the next generation, you know, the Series X at Microsoft.

Well, one of the, I think, the tells here for, you know, the, not only the direction that Nintendo is going, but that speaks to kind of this larger transformation is that Nintendo decided to go with basically mostly off-the-shelf mobile parts, you know, i.e., by creating a, you know, a system that could benefit from not only the innovation within the, you know, the mobile, larger mobile ecosystem, but benefit from the deflationary cost curve that, you know, is kind of parcel of that, you know, that tells you that, you know, that tells you, That is, you know, in large part, and there's a lot of factors here, that tells you that, you know, over time, you know, it will be very easy to, you know, continually iterate and improve upon, you know, new, you know, form factors and improve the hardware over time. And it's really all about the software, kind of as you put it. So by doing this, not only will they create kind of a long-tailed, you know, console that will allow them to sell their own first-party IP at increasingly high profit margins as, you know,

the ongoing digitization of sales keeps happening. But to layer on, you know, they looked at, you know, another case study that I used in my annual letter last year, a link to the past, if you will, was looking at how Sony and Microsoft used hardware as, you know, the basis of a reoccurring, you know, digital revenue center. And so you see that, too, with, you know, you know, I think you're referring to things like Nintendo Switch Online, which I think will eventually be a library of vintage games from all their, or retro vintage games from old, you know, consoles, and basically becomes like a Netflix of gaming for kind of classic retro games

and that kind of stuff. But, you know, there's also the possibility when you think about, you know, call it the streaming platform wars of the future, in a world where you have infinite checkbooks, from companies like Apple and Google and Amazon. You know, I saw one of your questions when you put the kind of the bad signal out on Twitter the other day.

And, you know, I just lost my train of thought. What was I just, what were we just talking about? You said infinite checkbooks, and I think you were going to say, if anybody wanted, if any of these guys wanted Nintendo, they could pay a fortune. Well, yeah, Nintendo's not going to sell themselves. I wish that was a,

possibility. I do, but there's no chance in how Nintendo is going anywhere into them. But what makes this interesting is that, you know, when you think about, you know, all the other, say the, let's look at Microsoft and Sony, you know, they have all third-party developer, you know, basically every game on Microsoft is going to be on Sony. They have very little first-party IP. That's what I was referring to in terms of the, one of the questions from your tweet. the importance of first-party IP. And, you know, you saw, you know, Microsoft just buy Bacita. But, like, you know, by and large, you know, people think about video game consoles

and they think that, you know, what sells consoles is software. And in order to differentiate yourself, you know, as a streaming platform, the way it is now, and I honestly think, you know, Microsoft can buy Bacita and, you know, and Sony can continue to incrementally bolt on, you know, to build out its own first-party IP library. But ultimately, I think when it comes to something like this, from a competitive standpoint, it's too little too late. Say Sony comes out with its own streaming service

and Microsoft does the same. Microsoft's clearly the lead and I think we'll run away with it. But the point is how do you, in a world of infinite checkbooks where money doesn't determine what's going to differentiate your value proposition versus the next biggest player, there's only one answer to, you know, how you win, you know, and that is bring Nintendo games into it, you know, like maybe Nintendo strikes a licensing deal where, you know, the first, you know, Breath of the Wild and Mario Odyssey, you know, they take 10 games and they put it on one of these services. They put it on

X-Pass or something like that. You know, not only will that create, you know, hundreds and hundreds of millions, you know, potentially billions and pure margin reoccurring free cash flow. But it is, it just speaks to the way in which, you know, ultimately, when I think about not only Nintendo's moat, but, you know, who's going to win in the future, there is no, there is no world where Nintendo does not, is not, one, a part of that in two, you know, a kind of a prime position to monetize their decades of peerless IP in ways that, you know, I mean, I don't even think it'll be very interesting to see the way Nintendo continues to, you know, monetize its underutilized world-class IP that we haven't even considered. But, you know, it's all about the

software at the end of the day to kind of go back to your question. And there are various ways in which they are not only diversifying their revenue stream but becoming, you know, largely and eventually I think entirely, and when I say eventually, I mean five, ten years, digital. And, you know, the cumulative impact of all these things is very, very profound. But, you know, let me push back on that a little, because I actually, I lean more towards the bookcase and I've looked at them a lot. And the warrior I always have with Nintendo, right? And if they would put game pass on, if they put games on to Microsoft or Sony or something? I think this would have to leave you.

It's going to happen. Say again. I think they've been flirting. There's a ton of clues, much like kind of the mosaic of facts that we laid out with the transformation of the dedicated console segment. I think if you dig beneath the surface, there is an avalanche of clues that it's only a matter of time before you start to see a tie up between Microsoft and Nintendo with respect to their. games. And in fact, I've been told that Microsoft would have already done it, that they are basically waiting for Nintendo to give them the green light. But we can push. I think that's near. I think that future is nearer than most people suspect. We can push on that side then,

because, you know, I'm hugely bullish. I love the IP. Like for a while on my blog, I had the quest for IP, right? And I always think of Comcast paying for Dreamworks. They paid so much money for DreamWorks because they had these great characters. And, like, there's no company that has better characters than Nintendo, aside from Disney and Nintendo, right? And if Nintendo was for sale, Disney and Comcast would go wild bidding for them. Disney, Comcast, Apple, Microsoft, Amazon, all of them. I think Comcast and Disney could be the best. I actually, you know, the case you were laying out just there was Nintendo is going to license some of their stuff to Microsoft. And when I say that, I say great because one of my bare cases for Nintendo is if you keep all of this in a walled

garden, right? You have almost, you know, like Cobra Kai on Netflix. Nobody watched it on YouTube. It goes to Netflix, which has great distribution and it becomes a hit. Nintendo, you could run a risk. Like with Wii, there were some great games released for Wii. Wii was a dud, so all those games had no cultural impact. If Nintendo stays everything walled garden, I worry about that risk.

If they go the other way and they put all of their stuff onto Microsoft for some huge licensing deal, which I'm sure will be crazy. profitable, but then there's no reason for me to go over and buy the Nintendo system anymore. I can just get access to all of it over on the Microsoft system. Then Nintendo's just a game developer. Are they a great developer, the top game developer in the world? Absolutely. But you need more than them being the best game developer in the world with four iconic

properties to justify the current valuation. I might disagree with you there, but I'll grant your point for purposes of this. So one thing, so here's an interesting kind of side tip, tidbit. So not this most recent quarter, but if you look at, you know, the prior quarter, you see a, I think it was roughly a $150 million uplift to R&D, you know, without getting into the weeds, that is a absolutely extraordinary increase in, you know, R&D, you know, relative to Nintendo's history, at least as far. as, you know, the financials that I have go. You know, I think when you see the arrival of Value Act, which obviously was instrumental in the digital transformation, you know, if a similar vein to what kind of Nintendo's doing here, when Value Act, you know, shows up and you look at, you know, this massive uptick in R&D,

which, you know, this is, you know, there's no way this is, that amount of uptick, this increase in spend, I think, is related to beefing up software, you know, or hardware. There's a couple different reasons I say that, but, you know, I think the only logical conclusion is, is that this money is going towards the cloud. So, you know, this might be money spent in the cloud to do a tie up with Microsoft and, you know, in lieu of providing kind of the infrastructure in Japan, allow, you know, Google and the ex-pass to actually get, you know, real market share in Japan, which, you know, it's kind of a joke, like I think they sold like two Xboxes last year. So that's a huge strategic goal for Microsoft. And more importantly, it sets the

stage for Nintendo to, you know, create, you know, this Netflix of gaming that you kind of led with, which is, you know, a digital, you know, think of it as an app. You know, you can basically play the 10 games that, you know, Nintendo licenses to Xbox. through your X-Pass pass, but you can also upgrade and buy, we'll just call it Nintendo Switch online, on top of that, and then, you know, get access to everything, you know, digitally. But, you know, there are lots of ways in which, you know, at the end of the day, what sells consoles are great games. And Nintendo is the goat of, you know, simply magical, you know, games that are, in some cases, I think, you know, I don't think it's absurd to call them high

arts. So, you know, I think as long as they develop the capabilities to reach consumers digitally, you know, that fit kind of the contemporary, you know, world, you know, there is always going to be, you know, I worry more about Nintendo's willingness to kind of press and leverage their advantages and go full speed into doing this. than I do their ability to, I don't think they'll ever be boxed out because they create the greatest games on the planet. I think they're the most talented, most creative, you know, video game developer of all time.

And I think if you read the tea leaves and you see the green shoots, they are, you know, actively not only spending money to lay that groundwork for the future, but they have a very large swath of options. I mean, you know, if Nintendo came out tomorrow, and said, guys, we're done with consoles, you know, we're just going to, you know, we're going to put our first-party IP on everything. The stock would put droop. You know, because, you know, all of a sudden you're selling into, you know, five, I mean, it would be a, there are so many different ways

in levers and escape patches, you know, for Nintendo to be worth multiples of where it is today, even if, you know, certain elements of their strategy don't play out as, you know, don't play out as they expected that, you know, that at the end of the day is what lets me sleep at night is there's just such an extraordinary margin of safety. You know, and part of this is also related to what you just highlighted, which is, you know, this IP, I mean, Mario, Zelda, you know, you know, a dozen plus franchises that literally mint cash decade after decade, year after year, you know, new game after new game, you know, there are very few IP in the world. world in any industry, in any space, you know, has the ability that not only the enduring

durability, but the ability to consistently generate gobs of cash flow, you know, simply by, you know, releasing the next game. So at the end of the day, you know, it's not just what I would call the king of the video games, but its IP library, its moat is in its IP and more effectively and efficiently monetizing this gold mine over time is something that, you know, I mean, it's barely even begun. I mean, the, you know, we're starting to see next year. We'll finally see Super Nintendo land open up. We'll see the Super Mario movie be released.

Now, Nintendo actually funded a large P part of this. So, you know, the impact to its earning power is going to be substantial. You can back into the contribution from the existing agreements on the parks. You have the retail centers. I mean, I don't think they think this is probably one of their last priorities at this moment. But, you know, they could pull an apple and build 500 stores across the world and they'd be packed day in and day out. You know, when I think of Nintendo, if I had one word to describe it, it would be optionality. I mean, there are, you know, it almost seems absurd, but there are 25 different ways that I think they could create billions of incremental value out of thin air overnight.

And that is something very unique and special. So I agree with you. I think there are, you know, when I look at this coming beloved brand, limited distribution, like, I think there are so many ways. And I'm glad, like, the Mario movie, like, I know the 1990s Mario movie was a disaster, but it is perfect for the illumination team. That's the team behind a spickle of me to go make it. In Super Mario World, I mean, this is perfect. And like, you know, these things are long overdue. But speaking of long overdue, we talked to optionality and monetization.

Like, one thing I worry is they should have had Mario Parks 15 years ago, right? Like hunger games as a part. And I worry that is Nintendo's culture, the culture that lets it make such great games, is also a culture that will kind of keep it from a lot of these optionality and monetization opportunities. You know, I think of something like World of Warcraft. Why couldn't that have been World of Hyrule, right? Or Breath of the Wild, famously, they said we're going to do lots of downloadable content for Breath of the Wild. Breath of the Wild was a work of art.

People spent hundreds of hours in that game, and Nintendo only got $60 from them, right? Like, if you look at something like Grand Theft Auto, people spend hundreds of thousands of hours in that game, and they're just monetizing that thing left and right. So is there something with Nintendo's culture that's going to keep them from realizing all this optionality that you and I see? And then I'll have a follow on to that in a second. Yeah, yeah, yeah. So two points. The first is, is you have to kind of, I think, distinguish between the changing of the guard that started begin in 2015. For Wakawa, I think is very, you know, I think, you know, the CEO and, you know, by and large, you know, the Nintendo, call it exec suite in general, is on board, living in the future and, you know, focused on innovating. and, you know, delighting, you know, people through innovation. I think that, you know, when you, a lot of the examples that, you know, you touch on from kind of the old guard, you know, the only one

that is left, you know, I think that is kind of a big roadblock here. And he's, you know, he's also, in a sense, sort of one of their greatest assets, but it's Miyamoto on the board level. So, But most of that friction has come with respect to mobile. And, you know, I think there are very good arguments on both sides. I actually think the death of mobile is wildly underrated. You don't believe me, you know, for anyone listening here, I dare you to download Mario Cart Tour, play it for 20 minutes a day for two weeks. And you tell me, you know, if you keep playing or if it's a fun game.

So that's, I'll leave that. I will be more than happy to take you all right. Please do. I'll send you my code. We can battle online. Actually, a few of my colleagues in this industry, we were very competitive about our Mario Car Tour. But so I think the culture and the mindset and the kind of insular inflexibility that defined the, you know, the old regime that was leading Nintendo is by and large gone. second part, and I'm trying to think, I'm trying to remember the full part of your question.

I think there was something, there's a second part of this that is important to close the loop. Go ahead, go ahead. So the question was just on, you know, are they going to take advantage of that optionality in that? Oh, yeah, yeah, yeah, yeah. So, yeah, so I think, I think the things that were, you know, kind of like the barriers to investment when it comes to, you know, something like GAN, because of the London name, those have collapsed. Well, I think the largest barrier, I mean, there's still Miyamoto on the board, you know, kind of standing in the way of certain things. But I also think that's very smart and long term. I mean, when I think about, you know, I don't want Nintendo to, you know,

put itself in a position where, you know, it basically gouges kids' eyes out with, you know, gotcha mechanics and, you know, where it basically turns into a casino. So, you know, there are a lot of big, huge games that mint money that I think it would be a mistake and it would betray. I think, I think Miyamoto is right when he, you know, is standing on principle to protect the family-friendly nature of Nintendo's moat. So, you know, I think it's all about how you experiment with monetization. So, you know, look at Mario Kartour and the way that Nintendo is pivoted towards, you know, a subscription model.

You know, I think, I think there are lots of ways in which Nintendo can, you know, continually enter and leverage its IP into, you know, kind of interconnected, networked, multiplayer games and do that very, very well in a kind of a variety of different ways. And I think, you know, on a very small scale, you've seen things like Tetris 99 and, you know, casual gamer things or the new Super Mario 35, you know, I think when you break it down, I think they are creating games and using their IP and in, you know, leveraging it in kind of adjacent ways that they have not in the past that I think not only plays to the future, but will be very, very successful. or at least certainly reduced churn and increase the stickiness of their, you know, online digital recurrent, you know, subscription services. So I don't think there is, you know, I don't think they're stuck in some past unwilling to do. It's not like they're only going to make platformers for the rest of their lives. I mean, I think just the way they innovate with what used to be, you know,

like 2D Mario platforms. I mean, I think it's remarkable. I mean, look at you, look at breath the wild. So, and, and Breath of the Wild did have, you know, two very large, you know, amazing DALCs. And my understanding is, is that Breath of the Wild, too, was supposed to be the, you know, it was supposed to be, you're seeing this with, as we speak right now, with all of the big franchises. You just saw two more DLCs get released for Pokemon, Animal Crossing, you know, DLCs coming down the pipe. Smash Brothers continues to release new fighters. you know, not just that first year after, you know, coming, but that second year, you know, like this is a recurring phenomenon.

And I think it's kind of somewhat masked here because, namely the one that came out first, Breath of the Wild, after they released the first two pieces, they realized they wanted to take the third and make it into Breath of the Wild too. Yeah. So, you know, there are, again, you know, not only you say they sell a game for 60 bucks, Well, they sold a game for 60 bucks, and then they sold a pure margin, two pure margin DLC packages on top of that, you know, that if this was, if they weren't making Breath of the Wild, too, you know, that next year they would have added two more.

And so all of a sudden, your gross margin, you know, quickly goes, you know, from, say, 50% to 85% and, you know, there's, you know, Animal Crossing, they could innovate and have in-game I mean, there's just, there is, the only thing that will stop them is, you know, that, you know, management themselves. But I think there's no real paper trail or way to look at the empirical evidence of the last few years and make the case that they are not, not only focused on these levers, but, you know, doing them quite well. You know, you could go and look at the way fans have reacted and look at the, the DLC, and the ongoing, you know, reoccurring ways they are monetizing, you know, kind of these recent games, first-party IP games that they've made. But, you know, they are incredibly not only well done, but I think if you look at their attach rates from owners, they are very, very high. So there's, you know,

in each space, we could talk about mobile, you know, console games, you know, things like Nintendo Switch, online and, you know, the untapped pricing power they have there and their ability to, you know, as they build out that library, create a Netflix, you know, subscription-like service where, you know, it's basically an app you download and people pay $10, $20, $30 a month to, you know, play the latest and greatest where, you know, maybe X-Pass gets, you know, the first generation Zelda and Mario, like the stuff that's been out for a while and their own online, you know, app, if you will, is, you know, where you find the latest and greatest of, you know, their, you know, developments. Let me push a bit. So, I think there's two pushments. Like, if you've got, you know, Netflix,

nobody watched Breaking Bad on AMC for the most part, right? Most people watch it on Netflix. So you weren't getting it up to the date. You were just getting it when it binged onto Netflix, right? Right, right. So I do think you cut into a little bit of your value. But I think this speaks to the second where I had, which is, you know, Animal Crossing, Breakout, Breakout Hit. I think 25 million copies sold. Breath of the Wild, 20 million plus copies sold. You know, these are huge numbers, but I worry about, I worry the value is, I worry that Nintendo's at its maximum value and maximum optionality right now, and if they don't strike

very quickly, they will miss out on a lot of it. For instance, you know, RoboBlocks, 150 million monthly active users versus we just talked to Animal Crossing sold 20 million copies. copies, you know, how many monthly active users is that going to have as the team wears off like a million? I don't know. But, you know, like, there are games out there that are cross platform that are scales that are far dwarf Nintendo. And I worry, like, one of the reasons Zelda is so popular is you and I grew up with Zelda. We've got that memory of it. Kids grew up with Zelda. Today's kids might be growing up more with Robo blocks or Minecraft, particularly if

the only way to get Nintendo is to buy the Switch and shell at $300. Maybe parents are just pushing a lot of kids over to the free roboblox or something? Yeah, I mean, you know, I think this was part of the reason for, you know, entering the mobile space is kind of this train of logic, you know, in terms of, you know, how do we continually reach people, you know, in young generations to keep our IP relevant and popular, you know, and, you know, just how do we kind of fix this problem? So obviously, you know, having some focus in the mobile space allows Nintendo to reach, you know, and put, you know, smiles on kids' faces everywhere in a way that, you know, they can interact and,

you know, come across. So I would just say that, you know, we've seen them take actions. You know, it's clear they are self-aware of this risk and they are taking actions towards that. remember this is also a big piece this you know not only mobile but this ties into the theme parks and the movies you know these are the ways in which we use different forms of media uh you know to from movies to brick and mortar retail to to kind of you know continually replenish this relationship with you know the young gaming community um at the same time i also you know again i point to their financials you know a lot of the clues here where you know i think it's clear they are spending money and weigh, you know, a lot of money that, you know, is most likely going towards, you know,

some cloud-based solution that, you know, will, I mean, if there's any Achilles heel with Nintendo, you know, I think that I constantly worry about and I'm very all, you know, up to, I'm up to the minute in terms of, you know, understanding kind of where they're at, you know, it's their online play, you know, it's their ability to create networked games that, you know, that faithfully recreate, you know, the experience of the game itself on a console. And, you know, I would just, you know, who knows, the future is uncertain. But, yeah, I mean, is that a risk? Certainly.

Do I think Nintendo is making the right moves to, you know, kind of reinforce and defend against, you know, those risks? Yes. You know, but you say something like Roblox. I mean, I just put it like this, there's, you know, creating the, the high art of their games. They're, you know, the, just from a developer standpoint, these are the best there's ever been, you know, Nintendo is just magic, you know, game, you know, it's games that drive every, you know, ultimately, Roblox is huge because, you know, obviously people really dig it. I have all the confidence in the world that the mad scientist geniuses at Nintendo will always find a way to create games that people love and enjoy. And as long as they are open to and actively moving towards a future where they are putting those IPs into that those IPs can be played in ways that speak to what you're talking about, that they will be, you know, I don't. I don't think it's, it is from a fundamental price to value standpoint, the stock could triple

based on the value of the dedicated Switch console alone, you know, zero out all the minority equity stakes, Pokemon, Niantec, you know, the third, you know, the billions in cash, you know, the, the Mariners stake, all that stuff. And you have a very big win. If you're thinking out 10 and 20 years in terms of, you know, their ability to continually expand the size of their remote and stay relevant, you know, I think that the groundwork is being laid as we speak to make sure that they, their place in the gaming ecosystem, you know, is always, you know, intact. So I don't have the perfect answer, but, you know, I don't see, everything I see at the margin, you know, their actions, you know, what they say, what they've done, you know,

It's not something that keeps me up at night. Last bear case, and again, I don't mean to hear me the bear case, because I'm actually very bullish on the company. Yeah, you know, that's what we're here for. This is the company, like I once apply, but like I look at them releasing Mario Kart Tour without any multiplayer capabilities for what was it, like six months. Yeah, it was totally.

And you look at it and you say, how can a company in, they release it in 2019, I think, how can a company in 2019 release Mario Kart, which is, you know, I've got great memory. he's playing on n64 and like it's literally the game meant for get seven of your friends and play it and with mobile it should have been dominating how can they release it without it and you look at and you say have they really gotten the memo do you worry about that at all or do you just think it's a so i did i did so uh i when it came out with that multiplayer i mean besides just you know

the there was a lot of uh questions that introduces um but i will say this as someone that has the gold pass that has played it consistently. You know, I didn't play video games for 20 years. And, you know, now I've gotten back into them for, you know, now you have to be a pro. Yeah, right. Research, you know, because so, you know, I've gotten not only back into, you know,

kind of the games that I grew up that's in some sense to find part of my childhood like, you know, Legend of Zelda. But the first mobile game I've ever played is Mario Kartour with, you know, some level of, you know, I play it probably 20 minutes a day. And, you know, part of what I think, I mean, I think the way the game has evolved and changed since its release. This is why I threw down the Gauntlet Challenge.

I think that 90%, in fact, when I talk to people, it's probably closer to 98%. When people hate on Mario Kart Tour, they're talking about, one, the strategic misstep of not launching with multiplayer. But the truth is it wasn't done. So, you know, they either delay the game another year after they'd already delayed it in the first place, or they put it out there and they start getting data to iterate and improve the feedback loop on. And, you know, so did they waste the 123 million download opportunity that would have, you know, kind of kickstarted the multiplayer network effect? Yes. But, you know, so did Pokemon go in a lot of ways initially. It was a massive hit right out of the gate, but there were tons of problems.

A lot of stuff that people loved about Pokemon was missing, but they iterated and improved and figured it out and leveraged that kind of feedback loop to create a game that has consistently gotten better and better and better. And you've seen that translate into active users and, you know, the game's kind of fundamental earning power. And so with Mario Kart Tour, anyone that actually plays it and that has played it, you know, consistently through time as they've added new, you know, not only multiplayer, but, you know, landscape and, you know, various, you know, features to the game and if they've tweaked the graphics and created cooler, I mean, like, I think Mario Kart Tour, and I say you, you know, completely sincerely is more fun than Mario Kart 8 on Switch. I think it's twice as fun. And I'm not, you know, I mean, this is certainly one man's opinion. But the gameplay at this point is utterly fantastic. And I think it will take time. But it's good enough that I think you'll have a similar dynamic with what you saw with Pokemon Go,

where you have this explosion in active users, then it just basically drops through the floor. And then it slowly steadily rebuilds as they iterate and improve and leverage the feedback loop that they get from, you know, just observing and analyzing what people like and what people are doing. So, you know, they're, to me, they're doing it right and they're doing it remarkably right. And if, you know, looking at the way that, you know, the qualitative way in which they've done these things, you know, I am, people say that they've kind of abandoned mobile. There's, you know, they haven't abandoned shit. Like, they are making the game, you know, materially better by significant orders of magnitude, you know,

with every six months that passes. And, you know, I think we'll see that kind of stuff continue, not just, you know, in terms of mobile subscriptions, but other subscriptions, you know, from other IP into the future. But, you know, we'll see. Well, I can't wait to download it and play it now. But two more questions than I'm going to let you go. Sure.

We mentioned a lot of upside optionality for the company, you know, putting their games onto other platforms, getting the switch going, at some point they're going to have, they're going to have a part of a lot of different parks. They could roll out Nintendo stores all across the world. I used to love pre-pandemic when you could go places. I used to love going to the Nintendo store every now and then and just checking out. Of all the optionality pieces we've talked about,

there are some that would drive the biggest near-term kind of pop into stock. But what's the one that over the long-term you're kind of the most excited about for value creation? Oh, that's a good one. That's a great question. most excited for the, you know, I'll go with, you know, the dedicated console segment's transformation, specifically the release of the pro, which I think we're going to see in the first quarter of next year, simply because of how it unlocks not only a massive additional, you know, market, but creates, you know, a floodgate of additional additional

optionality for third party AAA or, you know, I guess now it's, you know, quadruple, I guess that's a thing. Games, you know, that were impossible to faithfully recreate and, you know, put on a switch because of power issues. So with the pro, you know, I think it acts as, you know, because Sony has pulled out of the portable space, the Vita's gone, you know, you have, it's kind of like a Trojan horse form factor when you can, if you can create current gen and then eventually next gen games as hardware iterates and improves in terms of specs and kind of power, you create what was never possible before, which is what, you know, the hardcore gamer set, you know, playing Call of Duty. The ability to play Call of Duty portably

and, you know, on the go is an absolute freaking game chain, you know, like, so you not only have a, you know, the barrier to third parties putting the most iconic, most kind of, you know, spec intense games, you know, into Nintendo systems is about to drop or collapse entirely. That has a number of very significant repercussions, not only in terms of driving incremental sales, you know, on in terms of the hardware, but in terms of software, you automatically, you know, open the door that has been kind of the biggest barrier certainly in the past to kind of, you know, setting that network effect on fire for Nintendo. You know, Nintendo is going, you know, think about eShop and, you know, think of Call of Duty. Think of you could play Call of Duty as you could on, you know,

the Xbox One or the PS4 Pro. And you could play it, you know, with, you know, zero. You know, the fidelity of it, you know, was, you know, perfect how many games that would sell, you know, like the, I think it'll do two things. And not only will it confirm the iterative hardware, you know, software platform, it will also show that, you know, the, I think it'll bend the tie curve, the tie ratio up, and it will create, it will make Nintendo's portable, basically a portable for all gamers. not just necessarily, you know, kind of the Nintendo, you know, fan boy. So that actually wasn't articulate and as eloquent as I could have. If I had, if I could write down, give me 10 minutes to write down all the bullet points, I could give you a better answer. But, you know, I think that is what excites me the most because, you know, as it stands right now,

I think most people on the street, even long investors, still view the company through a cyclical lens. and, you know, the assumptions embedded into a lot of the street's estimates will, not only will kind of the pillars, you know, drop in terms of like the basis of their, I mean, I think this could be the thing that starts that chain reaction of epiphanies and wakes people up to a future that even with the stock having doubled is still, you know, very few people see, I think, what, you know, a few of us see. And when that psychological change in terms of sentiment happens, I think I think that's going to drive a lot of, I mean, obviously through their financials, but more importantly, I think it's going to put the, you know, this is the thing that's going to make

the stock trade something closer towards reasonable, given what I think it is highly probable or earn in terms of steady state earnings power two to three years from now. So that's the the catalyst in the near term that I think will be probably the largest driver. But who makes the most money over the long term, you know, from all these various levers? I mean, mobile could be worth multiple, the current enterprise value, assuming they were to get it right movies. You know, if they're, you know, taking half the box office, well, there's questions now, I think. Are we ever going to have a box office?

Yeah, yeah, which is horrifying. And it's something I never thought possible. but I think it's actually a very, in fact, I have a movie theater rented in Kansas City on Tuesday night. Or just me for 99 bucks. I've been wanting to do that. 13, old Ryan is over the world. No, you know, I guess, and we're going to have to wrap this up, but movies you said it. And I just think like you look at the Disney virtuous cycle where Marvel drives the Marvel universe,

which they can then use to drive people to sign it for Disney Plus. They can use it to create new rise. Nintendo has that flywheel. Think of Zelda on Netflix. Think of, think of, like, a game of drones, you know, whether it be anime or live action, you know, three, see. I mean, like, there are 20 ways Nintendo could create billions of dollars in value to its equity, literally overnight through a stroke of a pet. And, you know, we're seeing rumors of Zelda with Netflix now, actually. The Witcher on Netflix, right?

Like, you think about something like the witch, I could, I could list off 10. if you gave me an hour, I could list off 10 stories that we could go five seasons each on Netflix in the Zelda universe. Like there's so much that's unexplored. Totally. So the point is, like I said, you know, one word to define it, optionality. You know, if any of these high impact shots on gold land in the money, Nintendo investors are going to be very happy. Well, hey, you know, I think that's the sum of a ball piece. So Ryan and Connor from Crossroads Capital, look, this has been great. I pitched you at the beginning. I think, readers can see how it's sharp, I think you are. So appreciate you coming on. We'll be in touch and

have a good one. Anytime, brother. Thank you.