Tag Archives: Jefferies

Playing the player

It happens, we sometimes meet those players who have it all, and they also have the ego and naive approach, so basically stupidity in a neatly wrapped package. This is not about one of these people, this is about someone who got to be smart about it and even as my psyche is slightly vexed and upset on the game played, I have to admire the fact on someone making close to half a billion playing it. We get to the Australian Financial Review (at https://www.afr.com/business/banking-and-finance/hedge-funds/nintendo-trader-who-made-a-massive-short-bet-against-the-games-maker-revealed-20180730-h13cmo). the title gives the goods with ‘Nintendo trader who’s made a $540 million bet against the games maker revealed‘, the quote “Gabriel Plotkin, head of New York hedge fund Melvin Capital Management, has accumulated a $US400 million ($540 million) short bet against the Japanese game maker, according to regulatory filings” and in normal cases this is not an issue, the market is all about ups downs, I get that (I might not agree).

It is also part of the problem here. You see, the Nintendo Switch has been breaking records since the start and whilst it is about to push Microsoft down into a third position, it is equally breaking several other records. It has surpassed the historic global sales of the first Xbox, the GameCube, the Wii U the PS Vita, as well as the Nintendo 64. It is unlikely to surpass the Original Nintendo Entertainment System (over 61 million) for at least another year, but we see that the Switch has surpassed most of its own lifetime sales except for one console and 4 handhelds. It has done that great in less than two years. With the additional revenue from the software which is also breaking new records, one would think that there is no stopping Nintendo, so when I reported on the issue that I had with the Analyst making those brash announcements on being short by 10%, I was not sure on who is riding the ‘expected sales’ talk and why expectations are so high, were they inflated to be artificially high?

Well, it seems to me that someone made a truckload of money on the work of others. I am honestly unsure how to feel about that. I think I have to accept that this is how the Wall Street game is played; I merely accept that I do not have to like it.

So when I see “Nintendo will report first quarter earnings on Tuesday after the market close. Analysts estimate revenue will rise 21 per cent from a year earlier, while operating profit will jump 58 percent“, I wonder how that game was played. You see, two days ago, I wrote ‘The state of the gaming union‘ (at https://lawlordtobe.com/2018/07/29/the-state-of-the-gaming-union/), and when I was confronted with “even Jefferies’ Atul Goyal, widely considered to be the most optimistic of all analysts when it comes to Nintendo’s prospects on the market, has slashed his price target for the company by more than 10 percent, attributing his depressed outlook on a concern that Nintendo’s sales for the Switch in 2018 may not meet expectations“, which came from https://gamingbolt.com/jefferies-analyst-believes-switch-sales-will-see-a-slowdown-this-year. This is an issue I have raised before. Not in regards to Nintendo, or gaming though. So how come that we see, and merely take for granted the words of an analyst giving us ‘missed target for the company by more than 10 percent‘, that whilst we see the records broken and the forecast is: “revenue will rise 21 per cent from a year earlier, while operating profit will jump 58 percent“, at what point was there any validity on slashing the stock price? Is there an interaction between analysts like Atul Goyal and Hedge funds managers like Gabriel Plotkin?

Am I the only one asking that question?

If it was a bubble and someone shorted on that seeing the bubble is bursting like in the Big Short, I say ‘Yay!’ to the one doing it, or better those making money of stupid people deciding to make bubbles and hypes. People making money from stupid people relying on greed is a nice thing, it is like instant karma watching a Cobra seeing a nice snack, only realising too late that it is a Mongoose and the snake ends up not having any dinner and becoming a meal himself. Yet in this case, we need to accept that Wall Street seems to have its own view on natural selection and that the price of getting mentioned there is that you are merely the next meal for some. Still, when it is a faltering Microsoft, an error full of Facebook, Equifax breaches, they all happen and they will therefor take a few additional hits. In light of all Nintendo issues, apart from one solvable issue, the Switch has been doing stellar and now the issue rises more and more that what analysts predict is almost like selling fairy tales and in that setting pragmatism and realism will never ever win. This makes me wonder on the checks and balances on forecast analysts.

I might be jealous that Gabriel Plotkin made close to half a billion, but the setting does not make sense. Many who are actually in this field might laugh out loud, and that is fine. Still, logic no longer applies here, 3+3 is no longer 6 and that offends my logical way of thinking. Apart from me having been pro-Nintendo for the better part of two decades, the math does not add up on the Nintendo Switch. Consider the parts

  1. At Amazon recently, the top 10 sales chart for games was 90% for Nintendo
  2. Nintendo Switch is still breaking records, still on a firm route to be the second largest next gen console, surpassing another player, which it had not been able to do since they entered the market.
  3. Seven Switch games published by Nintendo have sold over 1 million copies each. And “Super Mario Odyssey” has sold nearly 10 million copies. For a system this short on the market, these are stellar achievements. In addition “Super Mario Odyssey” is bought by almost 60% of those owning a Switch that is nothing short of exceptional, it might not have been in the old days where everyone with a PlayStation had Tomb Raider, especially with the large game market nowadays, but it is still quite the achievement.

When we see the demand for Nintendo Switch continuing, the sales racking up and the records that are currently being broken, how unrealistic were the forecasts from analysts? That is where my mind is at. So whilst we saw the 10% drop given two days ago, where was the reality there? That is what makes the issue for me, so when we see someone walking away with half a billion at the expense of Nintendo, the question becomes

Was the Market played, were both played and how was this play possible?

My mind tends to go towards the inside job equation. I cannot say that this is an accusation, mainly because I do not know or comprehend that market. Yet, I do know games and consoles and in all this, the setting of Nintendo does not add up. So whatever Melvin Capital Management and Gabriel Plotkin did to make this play out the way they have shown that they are really intelligent, no one denies that. Yet, in light that Nintendo got slammed because of this, in light of all the gains they have made does not add up for one iota.

Yes, many graduate from the London School of Economics will have a laughing field day on this, I get that, but the sentiment form me stands, the numbers do not add up because the forecast is set in a too unrealistic way from my point of view and that is where the people behind the screens create turmoil that seems unacceptable to me.

In this, the funny part is that Yahoo Finance actually gave me something that I do not agree with, but the phrasing is actually important here. With ‘Massive Short Bet Against Nintendo After Shares Drop‘, we see (at https://finance.yahoo.com/news/sac-alum-plotkin-makes-massive-050808098.html). the quote “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 $375 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” starts funny, because I am not certain if Gabriel Plotkin is a (or even ‘the’) villain, or the new Warrio. You see the part that we see is ‘contributing to stock declines since May that have stunned analysts‘, that was not the case, analysts started the 10% drop that started it all, the question is whether this was an intentional play to decrease the value of Nintendo, and if there was intent, do any of those analysts have any connections to Microsoft? If there is a villain Microsoft is a much more likely one than the facilitator Gabriel Plotkin seems to be.

the other quote that seems to be important here is: “Many analysts were bewildered when shares began dropping sharply in May, leading to the biggest gap in a decade between brokerage targets and the actual stock price. Goyal called the declines “shocking” at the time“, the quote seems to be in opposition to “the most optimistic of all analysts when it comes to Nintendo’s prospects on the market, has slashed his price target for the company by more than 10 percent“, which I commented on two days ago. Something made him slash the prices, so there was no shock. Now we get to the part on how Atul Goyal got from one place to the other. Did Gabriel Plotkin play Atul Goyal, or did they play the market together?

I might not have noticed if they had played Microsoft with their bungles on the Xbox and Surface fields, I might not have noticed on the PlayStation reaching certain levels of saturation, or even IBM, who got the ‘tits up’ claim from the Register. There would be an impact, especially with the ‘troubling storage underperformance‘ that their cloud had. Yet in opposition the Nintendo setting did not add up and I wonder if it ever will add up, unless certain analysts are proven to have set the stage of (intentional or not) creating an anticipation bubble that was too unrealistic. That was merely my view and I believe that I am not the only one having certain questions in all this.

Merely ask yourself on how stock drops 10%, that whilst operating profits are set to be jumping 58 percent in the last year alone and more profits are clearly in the sights of all who see what Nintendo is doing, creating, as well as achieving.

#SwitchIsLife (or so they allegedly say at Nintendo)

 

 

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