“Thank You Mario, But Our Portfolio is in Another Castle”

August 2, 2018 4:15 PM

The Trader Who Made a Massive Short Bet Against Nintendo [Bloomberg] [Autoplay Video] “There’s a new villain in the world of Nintendo Co. Gabriel Plotkin, head of New York hedge fund Melvin Capital Management, has accumulated a $400 million short bet against the Japanese game maker, according to regulatory filings. The former star trader at SAC Capital Advisors accounted for as much as 7 percent of Nintendo’s daily volume in recent weeks, contributing to stock declines since May that have stunned analysts. Investors have been baffled by the sudden swoon and Plotkin’s position may add to their concerns.”

• *UPDATE* The US Trader Who Bet $400 Million Against Nintendo Takes Huge Hit As Stock Price Soars [Nintendo Life]

“U.S. hedge fund manager Gabriel Plotkin believed that Nintendo's stock price would continue to fall after a recent trend of steady drops, deciding to use short-selling tactics to make a healthy profit should this be true. By borrowing and selling $400 million worth of shares, Plotkin would have been able to repurchase the stock at a lower value after a fall, essentially gaining a nice sum in the process. Events didn't go to plan, however, as Nintendo reported earnings that beat early estimates, sending shares up by as much as 7% in Tokyo trading by the end of the day. According to Bloomberg, this suggests that Plotkin’s hedge fund, Melvin Capital Management, will have seen a very substantial loss of $27 million.”

• Possible Reasons Why A Hedge Fund Manager Is Betting $400 Million Against Nintendo [Kotaku]

1. Plotkin is dismayed by the news that Nintendo won’t be trying to rehash its back catalog via the virtual console on yet another of its devices, and he sees softer digital sales on the horizon if fans can’t buy Super Mario Bros. 3 for $5 one more time.
2. He’s pissed that Mario Tennis Aces’ story mode was so half-assed and sees it as a sign Nintendo is already taking its fans for granted again.
3. Despite the company adding loot boxes to Animal Crossing: Pocket Camp, Plotkin doesn’t think Nintendo’s been aggressive enough with its monetization efforts on mobile after Super Mario Run’s lackluster performance.
4. Yoshi was MIA at E3, and we didn’t hear a peep about Metroid Prime 4 either. An overall lackluster line-up going into the end of the year means the average sale of .9 games per Switch owner for this past quarter (compared to 1.7 a year ago) could drop even further.
5. Having watched his niece struggle to put together Nintendo Labo cardboard in any configuration even vaguely resembling a house, Plotkin had a premonition that sales of the kits would drop off fast, stagnating at around 1.39 million three months after release.
6. Plotkin is incredibly skeptical that the company that brought us friend codes won’t somehow fuck up the new online subscription service launching in Q3.
7. Summer’s half way over and Nintendo still hasn’t announced an N64 Classic.
8. Plotkin heard that this year’s Pokemon games, Let’s Go Eevee and Pikachu, were spin-offs and not “core” games in the series, and he doesn’t think giving Pikachu a bowl cut will be enough to make up the difference in sales potential.
9. The hedge fund manager thinks Nintendo is overhyped right now and that double digit stock growth quarter after quarter (from $15 to $50 in just two years) has left the company overvalued and ripe for a bubble-bursting reality check. The Legend of Zelda: Breath of the Wild and Super Mario Odyssey only get to come out once, after all.
10. Yes, Ridley’s in Smash now. But no Waluigi? Huge mistake. You get what you get for that one, Nintendo.

posted by Fizz (24 comments total)

The NES Classic is so popular it outsold the PS4, Xbox One, and Switch in June
posted by 1970s Antihero at 4:28 PM on August 2, 2018 [7 favorites]

I love Nintendo, but I do not love how much of their strategy seems to depend on selling us literally the same games over and over. (eg, NES Classic, Virtual Console)

Think of it as a service fee for not having pull all your shit out of the attic to play an old game.

I say that as someone who has rebought OOT five times over the years.
posted by Definitely Not Sean Spicer at 4:45 PM on August 2, 2018 [16 favorites]

The NES Classic is so popular it outsold the PS4, Xbox One, and Switch in June

Everything old is new marketable again.
posted by Fizz at 4:57 PM on August 2, 2018

The real answer is that a lot of the gaming market is younger and hasn’t played that many games that are older than they are
posted by aubilenon at 5:21 PM on August 2, 2018 [5 favorites]

> Think of it as a service fee for not having pull all your shit out of the attic to play an old game.

That is literally 80% of the fun.
posted by dmd at 5:29 PM on August 2, 2018 [4 favorites]

Looks like a conspiracy between Nintendo and Musk against the hedge fund managers.
posted by sammyo at 5:29 PM on August 2, 2018 [1 favorite]

I love a good short squeeze

But seriously, I get shorting Nintendo, sure sounds like a reasonable bet, but a $400M short? I know these fund guys have balls of steel but it seems way too risky for that kind of position. It must be the Smash-Waluigi grudge.
posted by GuyZero at 5:48 PM on August 2, 2018

Think of it as a service fee for not having pull all your shit out of the attic to play an old game.

And you don't even have to buy rubbing alcohol and q-tips.
posted by RonButNotStupid at 5:49 PM on August 2, 2018 [2 favorites]

The NES Classic is so popular it outsold the PS4, Xbox One, and Switch in June

You're telling me people like paying $60 better than $499 or $299.

Seems... hard to believe.

No, wait, the other thing: easy. It seems easy to believe.

But seriously, it's apples to oranges.
posted by GuyZero at 5:54 PM on August 2, 2018 [13 favorites]

That is literally 80% of the fun.

In the 1990s I discovered that my uncle had a complete and still-boxed Atari 7800 stashed in an attic crawlspace which just happened to be accessible from the upstairs bedroom with the NES. It was always a fun game to pretend to go upstairs and play Nintendo but secretly retrieve this forbidden fruit and quietly hook it up to the television. It was certainly a much more fun game to play than any of the actual Atari 7800 games he had Pole Position II was fun I guess and maybe Asteroids?
posted by RonButNotStupid at 6:02 PM on August 2, 2018 [5 favorites]

I love Nintendo, but I do not love how much of their strategy seems to depend on selling us literally the same games over and over. (eg, NES Classic, Virtual Console)

Count me as someone who kind of likes it. I'm a filthy casual who last "really" gamed in the days of SNES, X-Comm, and Doom. I don't only play out of nostalgia; we have a Wii and stuff. But hard core gaming has thoroughly escaped me; I'm pretty sure I'm never going to install a PC game again and I can't even stand console games that need to, like, download a 300MB patch before you can start them up. Not to mention the learning curve for anything multi-player. I've used my SNES Classic more in the last 2 months than I'd gamed in the past couple years combined. And most of that time was working through old Final Fantasy games in various emulators. I think it's a good move on Nintendo's part.

I'm not saying that's ALL they should do, but I don't think we're really at risk of that? Like I heard this Switch thing was pretty popular. Honestly I wish Nintendo would just bring their backcatalog of games out for each new platform rather than this kind of selective "classics" re-release. Like I should have been able to get all NES games for SNES; I should have been able to get all NES and SNES games for N64, etc. This lack of backcatalog options is actually what discouraged me from buying another console after SNES (my wife had the Wii when we met). Still, the classics approach is better than nothing.
posted by Joey Buttafoucault at 6:25 PM on August 2, 2018 [3 favorites]

I feel like the Smash Bros. announcement at E3 would have given me serious pause when gambling with $400 million. If Nintendo drops the price of the Switch when they launch Smash Bros., and if the game is rated highly, they could ride that title alone for several quarters. The lack of any new "core" Pokemon or Fire Emblem games for the 3DS is an odd decision, however, and they seem to be moving away from the 3DS platform altogether, which I think is a mistake.
posted by Brocktoon at 8:17 PM on August 2, 2018

People can swear that Capitalism is "the only system that works" but I'll never believe it as long as there are ways to make money by betting on another company's failure or make money by sucking all the value out of a profitable company until there's nothing left.

There are plenty of ways to make a profit that also create value in the world. The fact these hedge fund vultures are tolerated is just another sign of how broken the system is.
posted by Mr.Encyclopedia at 8:37 PM on August 2, 2018 [10 favorites]

ways to make money by betting on another company's failure

There are plenty of weird and questionable things you can do with shorts, but you also kind of need them for price discovery. If a stock price significantly fails to reflect underlying value, that is something people need to know. People who buy an overvalued stock are going to lose by it eventually.
posted by praemunire at 8:53 PM on August 2, 2018 [8 favorites]

The fact these hedge fund vultures are tolerated is just another sign of how broken the system is.

The reason they're "tolerated" is that there are others who are perfectly willing to take the other side of that bet, and in this case are probably very happy to have done so. Every time someone sells short, someone else is there to buy long.
posted by alexei at 9:25 PM on August 2, 2018 [6 favorites]

Have a nice life being the shkreli that killed Mario. I'm sure the public will admire his fiscal pragmatism.
posted by adept256 at 1:39 AM on August 3, 2018 [2 favorites]

I love Nintendo, but I do not love how much of their strategy seems to depend on selling us literally the same games over and over. (eg, NES Classic, Virtual Console)

I love Penguin Books, but I do not love how much of their strategy seems to depend on selling us literally the same books over and over.

(More than any other video game publisher/platform of the past 50 years, Nintendo's titles count as a form of classic literature that merit close examination by students of the form. It's not that they're making you buy the same games over and over, it's that people who literally were not alive 20 years ago finally get to play them in more or less their original form.)
posted by Strange Interlude at 5:34 AM on August 3, 2018 [11 favorites]

I love a good short squeeze

Me too, but this is not a short squeeze, just a short position that pays off.
posted by atrazine at 6:07 AM on August 3, 2018

I love Penguin Books, but I do not love how much of their strategy seems to depend on selling us literally the same books over and over.

But that's not really a good comparison, is it? A book, historically, has been tied to a physical representation. You didn't need the "rights" to read a book, you just had to have one to read it, which is how libraries could come into being; they could lend the physical representations without affecting rights over the text within.

Nintendo's games have become divorced from their original representations. Not only do these new versions of their classic games have no physical representation, but it's becoming increasingly difficult even to find the originals, or a means of playing one of them if you have it.

When Penguin makes a physical book for sale, they not only have to have necessary rights to the text, but they must pay for materials and labor, and have means of production. Nintendo's costs eliminate entirely the materials portion, and the labor and means are significantly less. Selling a new copy of Super Mario Bros. 3 is essentially printing money for them.

The sad thing is, up until the Switch, Nintendo seemed to recognize this. If you already have the Wii version of a game, you get 80% off the Wii-U version. Not free, of course, but that usually reduced the cost to $2 or less; for NES games, it was usually a flat $1. But Switch has abandoned Virtual Console; you can't play older games on it for any money, currently, at least until their online service is released in the coming months, which uses an entirely different scheme to charge people to play what they've already bought repeatedly. (I own The Legend of Zelda six times: On two different Gamecube compilations, on a GBA cart, and on Wii, Wii-U and 3DS Virtual Consoles. So of course my favorite way of playing these days is on an emulator, because that way I can play it randomized.)
posted by JHarris at 11:51 AM on August 3, 2018 [1 favorite]

A book, historically, has been tied to a physical representation.

This is true, but we certainly don't limit people to first editions of books. Books might have multiple hardback runs before being released as a trade paperback or paperback. Older books get updated cover art and get re-released. It's not an apples to apples comparison, but if Nintendo's videogames were books, they would all still be under copyright (at least in the US) and the original publisher would still control their release. Buying Zelda six times wasn't something Nintendo forced you to do. When I've bought multiple copies of games, I've done so as a matter of convenience. I could keep my NES around, but it seemed easier to just have the game on the new platform.
posted by HiddenInput at 12:49 PM on August 3, 2018

Also, Nintendo ending their formal Virtual Console service in favor of the physical NES and SNES Classic consoles (as well as their continued support for Amiibo) tells me that they're very much interested in selling physical representations of their IP, albeit in a more concentrated form.
posted by Strange Interlude at 1:05 PM on August 3, 2018

Have a nice life being the shkreli that killed Mario. I'm sure the public will admire his fiscal pragmatism.

Eh, this is a guy who is simply betting on the company failing, with no direct input on how they proceed. You own more Nintendo shares than this guy, who owes folks shares he doesn't have.
posted by pwnguin at 1:13 PM on August 3, 2018

What a fucking idiot. The Switch is the first console I have bought new since the Game Gear, even though I've owned an xbox 360, PS/2, SNES, NES, Gameboy Color, and 3DS. All bought used or gifted after they were a generation old. There are a ton of people that are buying into a console generation for the first time as an adult with the Switch.

You fool!
posted by kittensofthenight at 2:55 PM on August 3, 2018 [2 favorites]

I love a good short squeeze

The Porsche / VW short squeeze mentioned in the linked article caused one of the world’s 100 richest men to lose a billion dollars and jump in front of a train.
posted by chappell, ambrose at 9:08 AM on August 4, 2018