Updated September 20th, 2023
Bullish Nintendo sentiment is slowly bubbling to the surface. At the beginning of the month, Digg founder and tech investor mainstay Kevin Rose plugged Nintendo on an episode of Tim Ferriss’ podcast. In the show, dated September 1st, 2023, Rose summed up his bull thesis succinctly:
NTDOY, Nintendo, Super Mario Bros. Second highest, what is it when they have the sales, box office sales and of all animated films. The Super Mario Bros. Amazing movie. They’re sitting on a fuck ton of IP. So a nibble for me is Nintendo. I nibble because I see them playing with Universal Studios. Could they be the next Disney? I don’t know, man. Zelda could be the next Lord of the Rings. There’s a lot of IP locked up there in Nintendo. I think that that could be interesting.
The Tim Ferriss Show
That September 1st call turned out prescient, as soon after a (still unconfirmed) leak dropped that alleged a Nintendo and Google collab. Among other claims, the leak claimed that Nintendo and Google are working to develop a new virtual reality (VR) headset. Furthermore, the leaker claims an operational prototype exists and that Google’s been leveraging micro-LED tech from their 2022 Raxium acquisition.
Surprisingly, the news flew under the radar and garnered little press or investor attention beyond a few niche publications. But Nintendo’s IP catalog strength is undeniable. It’s especially strong in the face of Hollywood’s preference to license existing franchises rather than create original concepts. That tendency isn’t going anywhere. If anything, ongoing writers’ strikes reinforce the move. Couple their deep wellspring of intellectual property with a revolutionary new headset, assuming the rumors are true, and Nintendo might be the stock to watch for the rest of 2023.
Microsoft Investing in Nintendo?
Update September 20th, 2023:
As September marched on, more good news dropped for Nintendo stock. In the (as of today) ongoing FTC vs. Microsoft court case, investors got an unexpected treat: a flurry of Microsoft-internal emails hinting at a Microsoft/Nintendo partnership or outright acquisition.
In the emails, we saw a few gems from Microsoft Gaming CEO, Phil Spencer, related to Nintendo, including:
- Spencer calling a Nintendo acquisition a “career moment” and that a buyout will happen “at some point” based on a future that “exists off of their own hardware.”
- An assertion that Nintendo is “THE prime asset for [Microsoft] in gaming and today Gaming is our most likely path to consumer relevance.”
- Allusions to activist shareholders snatching up stock to push Nintendo’s existing board to take action in one direction or another.
These emails flew back and forth in 2020, so there’s undeniable info latency. We’re also in a very different financial and economic landscape than the same time three years ago when these emails went out. Still, major commercial interest from Microsoft and (maybe) Google in Nintendo based on hardware – beyond its existing Switch (paid link) properties – is a huge deal.
If you’ve begun researching investment opportunities and noticed something strange – that there are two tickers, NTDOY and NTDOF – don’t worry. The difference is initially difficult to understand, but the reality is simple once you look under the hood.
What’s an ADR and what are F-Shares?
American Depository Receipts (ADRs) offer US-based investors exposure to overseas stocks and companies without the hassle (and risk) of engaging in foreign exchanges. Generally speaking, an an American bank or broker issues ADRs to represent a portion of stock for a foreign entity. The percentage varies depending on the issuer and company in question. Importantly, in today’s globalized world, ADRs are typically denominated in USD. This move helps reduce currency risk as opposed to dealing in foreign-denominated shares.
ADR programs come in three different flavors:
- Level I is the lowest level program. Shares under this level trade via the OTC market. The reporting company has minimal reporting requirements with the SEC. Chinese tech conglomerate Tencent Holdings (TCEHY) is an example of a Level I unsponsored ADR. NTDOY is a Level I ADR.
- Level II are sometimes listed on a primary US stock exchange but require standard SEC registration. Level II programs also require the company to file an annual report that conforms to United States regulators. Consumer goods company Unilever (UL)is a Level II ADR.
- Level III is the highest ADR level and requires significant reporting rules very similar to the requirements that a domestic US company would need to meet. Taiwan Semiconductor (TSM) is a Level III ADR.
F Shares
Instead of ADRs, some investors prefer owning the stock directly while enjoying the ability to trade on US exchanges. These are rarer but are called F Shares. NTDOF is an F Share (hence the F at the end). F Shares are similar to ADRs in representing a third-party broker holding foreign stock and denominated in US Dollars.
But, instead of trading only on US markets like ADRs, F Shares settle in the company’s local stock exchange via overseas management. For a retail investor, there’s little difference in the primary pricing, buying, and selling mechanics – but some critical differences can have an outsized impact.
NTDOY vs. NTDOF: The Bottom Line
So, how do NTDOY and NTDOF differ beyond the ADR/F Share designation? One difference lies in the proportionate representation. NTDOY, on the one hand, represents 1/4 of Nintendo shares traded in Japan. On the contrary, NTDOF represents one regular share of Nintendo traded in Japan. Previously, NTDOY represented 1/8 of a Nintendo share, but a 2022 10-for-1 split halved the fractional representation.
Liquidity
The greatest benefit for retail investors selecting to invest in NTDOY over NTDOF centers on liquidity. NTDOY is priced more cheaply, juicing the volume. For example, as of this writing, NTDOY’s average volume is 943,780. NTDOF, on the other hand, sits at a paltry 3,167 average volume.
With far more regular volume in NTDOY vs. NTDOF, retail investors can find comfort in the fact that they can quickly and easily enter or exit their position at a relatively stable price point. On top of that, investors in NTDOY can choose their cost basis with more flexibility – NTDOF requires investors to purchase, at minimum, one full share of Nintendo stock.
Fees
F Shares don’t come bundled with expense ratios or other fees, but your brokerage may charge a commission (even if their standard model allows commission-free trading). Since your brokerage engages with an overseas trader to settle when exchanging F Shares, that commission is usually paid to the third-party broker.
Sometimes, ADRs have an expense fee bundled into the structure. Usually, though, this comes from the ADR’s dividend, and you don’t necessarily notice the cost. Of NTDOY’s 2022 annual dividend of $1.86, $0.10 goes directly to the broker team managing the ADR (in this case, JP Morgan and other partners).
NTDOY vs. NTDOF: Other Risk
Because both NTDOY and NTDOF represent holdings in a foreign nation, for US investors, there’s an inherent risk associated with both. Risk includes:
- Currency risk: If the Japanese Yen and US Dollar become out-of-whack, both assets’ pricing could become misaligned.
- Geopolitical and economic risk: Although Japan is a stable country, there’s always a risk of geopolitical tension or economic collapse impacting NTDOY and NTDOF.
- Sometimes, countries restrict ownership of their national company stock held by foreign investors. Because NTDOF represents direct ownership, you should examine whether this impacts you before investing.
NTDOY vs. NTDOF: A Clear Winner
Given a typical retail investor’s circumstances, purchasing NTDOY shares provides more flexibility and stability in their investment. That said, engaging your brokerage is critical to ensure an investment meets your risk profile, needs, and goals before pulling the trigger.
No matter which you choose, though, Nintendo has a bright future. And both NTDOY and NTDOF let US investors capitalize on its unique potential.
This post is for educational purposes only and does not constitute investment advice. As of the date of publication, Jeremy Flint had a long position in NTDOY. You can find more of my work here. This post may contain affiliate links, which means that I may receive a commission if you make a purchase or sign up for a service using these links.
In response to our request for comment, Kevin Rose (through a press representative) declined to provide any statement.
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