September 1, 2014

I Captured a Metroid

My youngest sister made our day yesterday by stopping by the house to visit for a few hours.  She had been at the NakaKon convention in Overland Park and saw an 8-bit pixel Metroid collectible she thought I’d love.  She was right.  Upon holding the specimen, I temporarily reverted to a six year old, 1980′s-living, NES-dominating beast.  Behold, and listen to the theme if you need some adequate inspiration.

Metroid Pixel Art Joshua Kennon

If you’d like your own Nintendo pixel art, the artist is appearing at conventions across the United States.  You can get all sorts of stuff, made out of 3D Perler beads.  I love that we live in a country where someone can make a living doing this.

Interestingly enough, I had run an analysis on Nintendo’s balance sheet that morning so the timing was perfect.  The company had reported results recently and I hadn’t, yet, gone through them.  There were some news outlets reporting on the details so I added it to my task list.  It was some straight-up 1934-style Benjamin Graham.  I almost did a double-take.

Despite its lackluster performance, the video game maker had maintained its legendary cash horde, built up from decades of selling Metroid, Zelda, and Mario titles.  The entire business was divided into 141,670,000 shares, and the market was placing a value of ¥11,910 per share on each piece of ownership.  The cash sitting in the bank, short-term investments, and other equivalents had a value of ¥8,665, and if you backed out all of the debt, you could get a net working capital figure of ¥6,860 per share.

In other words, if you paid ¥6,860 per share, you were getting the entire business for free, along with all the intellectual property.  You were paying nothing.  Talk about a margin of safety!  There was a point in the past few years when it briefly got within that range.  I wasn’t watching it when that happened, so I missed it, but there was a money management firm in New York picking up quite a lot, which is how it came across my radar (and one of the reasons it was on my mind last Christmas).

If they could actually turn things around, you would have this insurance policy sitting there that made wipe-out near impossible.  That’s what I mean when I talk about tilting the odds in your favor.  There was a point at which the price of Nintendo stock became so low relative to the high quality assets backing it that the income statement wasn’t the most important consideration.  In fact, the proper analysis at the moment would be to back out that ¥6,860 figure, with a few adjustments, and value the enterprise relative to earnings on the resulting, lower number as that’s the real price of the stock.  I wish I had a college finance course to teach, I’d make the students write a paper on it.  It’s not often you see this in the wild; a company that is trading for around half of what the stock price would indicate.

  • Jeff

    You should really thank your sister. I bet when she took hold of it, she had to race to the top of the building, get on her ship, and get out of there before the whole convention hall exploded.

  • Anon

    I read the blog entry, but I’m still struggling to understand what I’m looking at. :-(

    I guess I’m too young?

    • Anon

      OK, I think I got it now. I saw some other examples. How’s this one being suspended in the middle of the jar?

      • http://www.joshuakennon.com/ Joshua Kennon

        There is a thin, clear, plastic suspension holding it from the roof of the jar that is invisible unless you are close enough to see it and the light hits it just right.

    • http://www.joshuakennon.com/ Joshua Kennon

      It’s the eponymous creature that gives the famous Nintendo science-fiction Metroid series its name. They were a form of life discovered in the universe that had the ability to siphon energy, including life from living organisms, which, if harnessed, would allow a sentient species to use them as an power source. Unfortunately, their abilities also make them natural biological weapons so a race of terrorists known as the space pirates were attempting to breed them for the purposes of conquest. This is one of the earlier life cycle forms, before it reached full maturity.

      The Metroid series helped Nintendo reach its early dominance and build the empire that ultimately came to control the video game landscape for a generation. It was also one of the first times video game writers began introducing elements of film to their games, in this case, in the form of a plot twist. You played the entire game as a metal-clad, weapon-wielding bounty hunter, only to discover after beating the game, when the helmet was removed, you were female. Nothing like that had really been done 30+ years ago (with the right cheat code, you could replay the game without the suit and see that she was female the entire time). So it had a lot of “firsts” for Nintendo, and gaming, in general.

      The series had been a huge winner financially for Nintendo, but like all of their latest games except Mario, began to fail. They are looking for the reason. Personally? I love them, but the latest installments have fallen so far behind every other gaming platform in terms of graphics, sound immersions, and complexity that I couldn’t finish it. It’s a brilliant franchise with enormous brand equity, but they need to turn it into something as enormous as Skyrim.

      The reason this looks the way it does is because the artist reproduced the original 8-bit pixel appearance from the first Nintendo game back in the 1980′s; how it would look if that world had been real.

    • http://www.joshuakennon.com/ Joshua Kennon

      It’s the eponymous creature that gives the famous Nintendo science-fiction Metroid series its name. They were a form of life discovered in the universe that had the ability to siphon energy, including life from living organisms, which, if harnessed, would allow a sentient species to use them as an power source. Unfortunately, their abilities also make them natural biological weapons so a race of terrorists known as the Space Pirates were attempting to breed them for the purposes of conquest. This is one of the earlier life cycle forms, before it reached full maturity.

      The Metroid series helped Nintendo reach its early dominance and build the empire that ultimately came to control the video game landscape for a generation. It was also one of the first times video game writers began introducing elements of film to their games, in this case, in the form of a plot twist. You played the entire game as a metal-clad, weapon-wielding bounty hunter, only to discover after beating the game, when the helmet was removed, you were female. Nothing like that had really been done 30+ years ago (with the right cheat code, you could replay the game without the suit and see that she was female the entire time – see the attached image). So it had a lot of “firsts” for Nintendo, and gaming, in general.

      I have a soft spot for the game because it made a still single-digit year old Joshua Kennon begin panicking about the inevitable dangers of artificial intelligence as Mother Brain, the biological computer that had become corrupt and was behind the Space Pirate empire, was supposed to be a tool working for humanity before she turned on it. It introduced questions – things I know now are ethical dilemma and philosophy but didn’t have a word for them back then – that would cause me to spend hours staring off into the distance trying to work out for myself.

      The series had been a huge winner financially for Nintendo, but like all of their latest games except Mario, began to fail. They are looking for the reason. Personally? I love them, but the latest installments have fallen so far behind every other gaming platform in terms of graphics, sound immersions, and complexity that I couldn’t finish it. It’s a brilliant franchise with enormous brand equity, but they need to turn it into something as epic as Skyrim. Part of the magic of the series is the lonely sense of isolation. In the early games, it was just you, alone, on a strange planet, with danger around every turn, and a sparse, somewhat scary-but-not soundtrack that was nothing like Western music playing in the background.

      The reason this looks the way it does is because the artist reproduced the original 8-bit pixel appearance from the first Nintendo game back in the 1980′s; how a Metroid would look if that world had been real.

      • Anon

        Thank you! I finally understand now. I didn’t play video games much growing up, and I also grew up overseas, so I missed out on a lot.

        One thing that caught my attention was the part about birth rates. How they’re trending lower in places where they “should be” trending higher and vice versa.

        It seems the smart thing to do would be to financially incentivize higher birth rates in societies where it shouldn’t be decreasing. But in terms of both quantity and quality.

        Something along the lines of a bonus if your child gets straight As and Bs in school. A bonus if your child doesn’t get suspended. A bonus if your child has an IQ over X by age Y.

        (I haven’t fully thought this through. Perhaps parents might apply too much pressure. Dunno.)

        • R

          I’ve noticed that families who have plenty of resources and stability are more likely to say that they can’t afford to have more kids and act accordingly, compared to families who actually can’t afford it yet do it anyways.

          This is clearly visible between countries but you can also see it at a smaller level among the people you know. It even exists at a personal level. As I have reached increasing levels
          of assets and income, and now have a daughter, my expectations for the number of kids I will have are lower. Despite being very counter-intuitive it’s everywhere.

          You could say that this is just a result of people not thinking through the consequences of their decisions. I don’t think that can fully explain it. Some people do have poor judgement but this is far too big to be a simple mistake. And since both sides are doing the opposite of what you might expect, that would mean that both would have to show poor judgement if that were the only cause.

          There seems to be a more subtle effect here, possibly related to the post the other day about schools. It may be a good thing, at least over relatively short timespans. Joshua, I’m guessing you’ve thought about this a lot due to the societal and personal impact and might have some ideas about why it happens.

        • Anon

          Good points and observations. It is an interesting paradox. Here’s what I see…

          Poor Folks
          The US gives poor folks an incentive to have more kids and skim off the top for themselves.

          In other words, using fake/exaggerated figures: 1 kid = $500 per month; 2 kids = $1,000 per month; 3 kids = $1,500 per month. It’s a whole lot easier to split $1,500 worth of food each money 4 ways than $500 worth of food each month 2 ways. Look at earned income credit, child tax credit, food stamps, etc.

          And lastly, poor folks aren’t typically very bright and planning ahead isn’t a strong suit. Therefore, in situations where contraception is needed, it isn’t available but they just march on ahead without it. Live for the present.

          Rich Folks
          One of the worst things for rich folks would be to stop being rich. One way to stop being rich is to stretch yourself thin and not give yourself a cushion. Therefore, if you want 3 kids, once you take a look at your household expenses, you might think 2 kids would let you breathe/sleep easier.

          Rich folks have high-paying jobs, which generally goes hand in hand with putting work before a lot of things. Your boss might not look favorably upon a distracted employee with kids who can’t be depended on every day of the year. Therefore, a choice is made to not have kids (or a lot of kids), so that the job can be performed flawlessly.

        • Anon

          Also, rich folks don’t generally do things half-assed. The think kid and start thinking of best schools, college, and graduate school. And having to save for it.

          Poor folks, on the other hand, do. Best schools? “The local public school will do.” College? “Financial aid and get a job. Maybe just high school.” Graduate school? “Hahahahahaha.”

        • R

          I think people are responding to incentives and costs, they just have different incentives and costs. It’s not limited to the US so specific government programs might play a part but there is something more. Given that rich families often do spend a lot more on kids and generally have more opportunity costs, they may correctly realize that they can’t keep that up if they have too many.

          That doesn’t necessarily mean they can buy better outcomes (in fact the time they spend is likely to be a lot more valuable than the cash). We usually can’t control things as much as we expect. But as far as it does provide some advantage, who is better off? The smaller families with more support, or the larger ones with less? At what point do numbers win out?

  • FratMan

    Nintendo was founded as a trading card company back in 1889.

    And 76 other things that (might) blow your mind.

    http://www.buzzfeed.com/daves4/77-facts-that-sound-like-huge-lies-but-are-completely-true