Quick Analysis: Can You Buy Nintendo?

So the PowerBall reached a whopping 1.5 billion dollars, claimed by CNN to be the largest lottery prize ever.  In the end, three people won the grand prize. Naturally, with a jackpot this large, the question arose “What would I do with 1.5 billion dollars?” Well, one person on Twitter mentioned they would buy shares and become a major shareholder. With that in mind, I’d thought I’d look into if you could buy Nintendo. Today, let’s look if you could buy the big N and if it would be worth it.

Today, we’ll see if @Stealth___ dream of becoming the majority shareholder of Nintendo could come true.

First, let’s keep in mind that if you win the lottery, you will have to pay taxes on it. As MarketWatch states: “But that number is based on the winner taking his or her money in the form of a 29-year annuity. You get the first payment right away, and then one annual payment for the next 29 years. On the other hand, if you choose the cash option, you get all the money right away, but you get less. The projected cash-option jackpot is “only” $868 million. What’s the biggest reason to choose one option or the other? You guessed it: Taxes” Even though the prize appears grandeous, Uncle Sam will have his peice as well. Still, its not bad to have even a portion of $1.5 billion.

So you will only have roughly $868 million, after taxes. Is that enough to buy Nintendo? Well, how much is Nintendo worth? To answer that, we need to look at Nintendo’s market cap. What is market cap? As Investopedia states, “Market capitalization is just a fancy name for a straightforward concept: it is the market value of a company’s outstanding shares.” Market cap is calculated by multiplying the outstanding shares by the value of the company’s stock. Based on data from Market Watch, Nintendo’s market cap is 18.5 billion. Sadly, the lottery winnings don’t come close to outright buying Nintendo. Even with the $1.4 billion, you would only be able to buy 7.6 percent of Nintendo’s total shares. You would not even be the largest shareholder, although you will be third largest, after JP Morgan Chase Bank and State Street Bank and Trust Company.

Image source: http://www.icntrader.com/trading-products/stocks/

That said, is it still worth it to spend all your lottery winnings investing in Nintendo? To answer that, we need to know two things, the average return of the stock and its standard deviation. The average rate of return is exactly what it sounds like. Its the average returns (over a given period of time) for a stock, which includes dividends and an increase in the stocks price. The standard deviation is a stock’s volatility. Simply put, standard deviation is how far from the average it varies. Naturally, an investor wants a high average rate of return and a low standard deviation. Now, there are more complex, and perhaps more accurate, measures of a stocks return, but for the purposes of this article, this should give us a sense of how the stock will perform. If you are interested, I suggest looking into the Capital Asset Pricing Model.

So how does Nintendo fair? [1] Based on monthly change in the stock price over the prior 10 year period, the average rate of return is 7.34 percent and the standard deviation is 10.77 percent. What this means is Nintendo’s stock is very volatile. This makes sense as Nintendo’s income is based heavily on the performance of their systems, and subsequently, their games. While the company won big with the Wii, the company hasn’t fared so well with the Wii U. The standard deviation is the “deviation” from the average return; this means you could have a return of 17.34 percent or lose 3.43 percent. Based on our $1.5 billion from before, this means, in a year, you could gain $260 million or lose $51 million. These are the extremes so your actual returns may very. So while you would have a decent stake in Nintendo, you would theoretically take a lot of risk for holding the stock.

So, sure, it may be nice to dream about owning a stake in Nintendo and commanding them to make all your favorite game, in reality it isn’t so grand. Perhaps it would be better to take your winnings and build an amazing game room where you can play your favorite Nintendo games instead.

A worthy investment for videogame fans

Note:

[1] The average return and standard deviation was calculated using the change in Nintendo’s adjusted closing price over the last 120 months. Calculations were done using Excel formulas. Data was take from Yahoo Finance. Amount was calculated in US dollars.

[2]@Cheesemeister3k had responded to the original tweet with a lot of the same facts I brought up. I didn’t use his tweet to write this article, but I think it’s fair to note he said it first.