$NTDOY: is Nintendo's flywheel actually there? | Accrued Interest
Summary
Simeon McMillan’s Nintendo bear case is that Nintendo remains a cyclical hardware company whose promised flywheel has not appeared. Strong Switch 1 software sales are extending the old cycle, but Switch 2 needs new system-selling releases to migrate the audience; after bundled Mario Kart, the holiday centerpiece is a Zelda remake and Pokémon may not arrive until spring 2027. His conclusion: Nintendo may work as a trade around releases, but it is “not a stock you can put away and forget about.”
Andrew Walker sees Nintendo’s remake economics as evidence of an unusually renewable “oil well,” while McMillan sees a content gap masked by nostalgia. A decades-old Zelda remake could become a global bestseller, but McMillan argues Disney kept its franchises fresh through acquisitions rather than endlessly producing “Mickey Mouse part 10.” Nintendo’s second Christmas without another flagship title therefore rests heavily on older IP, third-party games already released elsewhere or years old, and fans whose reaction to its showcase was effectively: “That’s it?”
The weakest flywheel evidence is the combination of a low attach rate and stagnant subscription accounts. Switch 2 buyers are purchasing fewer games than Switch 1 buyers did at launch, even though the free bundled Mario Kart—“their Avengers game”—inflates the figure; bulls counter that existing Switch 1 libraries reduce the need for new purchases. McMillan’s sharper rebuttal is that Nintendo’s disclosed online subscriber count has been roughly flat over the last couple of years: “They’re milking more and more out of a strong fan base.”
Hardware inflation and Nintendo’s limited online strength constrain the margin story. Memory costs forced an unusually early console price increase when consoles normally become cheaper, making a Switch 2 Lite unlikely soon; margins should improve as software mix rises, but another hardware generation eventually resets them. McMillan wants two or three movies annually, a dozen parks, and far more television before treating licensing as a recurring, high-margin engine.
Pokémon demonstrates both Nintendo’s IP potential and the fact that Nintendo captures only part of its economics. Walker estimated that Nintendo owns roughly 35%, while cards, toys, collectibles, and other consumption keep younger users engaged beyond games; Walker calls that ecosystem the blueprint for Mario and Zelda. McMillan agrees it is “the ideal,” but partial ownership means Pokémon cannot move Nintendo’s economics as much as a wholly owned franchise could. McMillan also said he believed Pokémon Go had been sold to a gaming company he thought was owned by a Saudi conglomerate.
Spotify is McMillan’s cleaner compounder because label bargaining power has shifted, premium subscriptions keep compounding, and margins now have a credible runway. The 2024–2025 licensing resets lowered royalty rates as Spotify grew, while podcasts moved from “a money pit” toward profitability and extra audiobook credits reportedly reached roughly a $100 million run rate. At about 40× earnings and low-double-digit revenue growth it is not cheap, but McMillan sees high-teens-to-20% earnings growth, operating margins rising from roughly 14% toward 20% by 2030 and potentially 30%, plus 25–35% upside without multiple expansion.
Netflix looks cheaper than Spotify—roughly 18–20× earnings versus about 40×—but McMillan assigns Spotify higher conviction because its competitive path is cleaner. Netflix’s low-double-digit revenue growth, low-to-mid-30% operating margins, path toward 40%, global distribution, sports reach, and ability to “feast” on linear television make it a value stock; however, YouTube and irrationally persistent media rivals will remain. Netflix’s global scale lets it spread content costs over a much larger potential audience, and it is also picking off leading YouTube creators, sometimes exclusively, using YouTube as a kind of pilot season. Its long-term possibility is an entertainment super-app that bundles other services and takes a cut, but near-term alpha must come from earnings: “Follow the earnings, not the noise.”
Walker and McMillan disagree most sharply over generative AI’s threat to filmed entertainment. Walker extrapolates from the crude Will Smith cheeseburger clip to a possible two-year-horizon AI sitcom overseen by one writer—even a Friends knockoff called “Acquaintances”—while McMillan sees today’s output mainly as YouTube children’s slop, fake trailers, and copyright arbitrage. His defense is that media only looks formulaic: templates do not reproduce “that last little 2% that makes it magic.”
Deep dive
1. Nintendo has not escaped the console cycle
McMillan’s central distinction is between a company worth trading and one worth owning through a cycle. Nintendo may be attractive when depressed or ahead of a major release, but the stock is “not a stock you can put away and forget about” because revenue and enthusiasm still depend on periodic hardware upgrades.
The promised flywheel required Switch 2 software to pull Switch 1 users into the new ecosystem. Nintendo has kept old software selling longer than McMillan expected, but that achievement may merely elongate Switch 1’s life rather than prove that Switch 2 has become a durable platform.
He acknowledged that Nintendo retains real franchise power and that the stock had rebounded from its lows. His objection is duration: a release-driven 20% move does not settle when to exit, and he needs enough new software visibility to justify holding for more than a year.
2. Switch 2 lacks enough system-selling releases
McMillan’s hierarchy of Nintendo’s tier-one properties includes Mario Kart, the cycle’s main Mario title, Super Smash Bros., The Legend of Zelda, and Pokémon. Switch 2 launched with Mario Kart in the bundle—an unusual giveaway that he believes prevented materially weaker hardware sales.
The next holiday slate does not provide comparable breadth. Its biggest title is a Zelda remake, while Pokémon appears slated for spring or Q1 2027 without a firm date; by then, investors are being asked to wait deep into another calendar year for the platform’s next obvious system seller.
Walker’s bull framing was sharper than simply defending the release calendar: if a decades-old remake can become a top-five global game, Nintendo resembles Buffett’s old description of Disney as an oil well that refills. “Who else could re-release a game and have a bestseller?”
McMillan conceded the remake should perform, but argued that Disney refreshed its well through acquisitions and new franchises rather than “Mickey Mouse part 10.” Marvel itself eventually showed fatigue and brought back Robert Downey Jr.; durable IP still requires replenishment.
3. Nostalgia can sell software without building the next audience
Walker agreed that Switch exclusives—not superior graphics on a title like Resident Evil—drive the hardware purchase. His tension with the bull case is that investors call Nintendo the next Apple while repeatedly hinging excitement on another Star Fox, GoldenEye, or Ocarina of Time remake.
McMillan cited the market and fan response to Nintendo’s presentation: the stock began falling during it, while non-investor gaming reviewers reacted with “That’s it?” Beyond remakes, Nintendo highlighted third-party titles already released elsewhere or several years old, increasing the burden on Zelda to carry the season.
Zelda also lacks Mario’s resonance with younger children, in McMillan’s view. He did not call the forthcoming movie a box-office failure—it “will probably do well”—but rejected treating it as equivalent to a Mario Galaxy film or evidence of equal franchise reach.
4. The attach rate challenges the ecosystem narrative
McMillan defined attach rate as the number of games purchased with a new system, making it a rough measure of enthusiasm. Switch 2’s initial rate was materially below Switch 1’s, and bundling Mario Kart—possibly Nintendo’s bestselling franchise—makes the comparison look better than the underlying purchasing behavior.
His analogy captured the concern: Nintendo effectively gave away “their Avengers game.” The attach rate should improve as bundled units become a smaller share, but continuing domination by Switch 1 titles leaves him unsure that users are embracing the new software generation.
Walker supplied the bull rebuttal in full: upgrading owners already possess Switch 1 libraries, and subscription access to the back catalog naturally suppresses purchases. Under that interpretation, low attach is not weak demand but evidence of a sticky, healthy ecosystem around an exceptionally successful system.
McMillan’s response was the “elephant in the room”: Nintendo’s disclosed online subscriber count has been approximately flat over the last couple of years. He would reconsider if subscriptions showed momentum; absent that, the company is “draining more out of the cow until Pokémon comes.”
5. Memory inflation makes the usual console economics worse
Walker traced the immediate pressure to memory prices: console makers normally benefit as components get cheaper over time. Nintendo instead faced a choice between swallowing roughly $150 of added memory cost, by Walker’s estimate, or raising price and sacrificing some demand.
McMillan emphasized the signal from raising Switch 2’s price so early. Consoles typically become cheaper and eventually spawn lower-priced variants such as Switch Lite; the increase implies Nintendo itself does not expect memory relief soon, so he is “not expecting a Switch 2 Lite anytime soon.”
That pressure compounds the software gap. The existing Switch 1 library may bridge demand for a while, but Nintendo is asking consumers to pay more before supplying a full slate of new exclusives—a difficult setup for the holiday period when console volumes normally peak.
6. Margin expansion is real but cannot eliminate hardware resets
McMillan agreed that margins should recover as higher-margin software becomes a larger share of sales. His dry formulation was that the best margin outcome would be for Nintendo “never [to] release another console”—yet the exclusive ecosystem requires new hardware eventually, so profitability must continue to ebb and flow.
Nintendo’s online weakness also limits the 40–50% operating-margin vision some bulls describe. Its multiplayer heritage centers more on friends in the same living room than persistent global online play, while putting back-catalog games on sale is ordinary industry behavior rather than proof of a new service engine.
Walker described Nintendo as a great niche company whose strategy does not consistently maximize shareholder value. He argued it might have commanded an enormous acquisition premium in 2020–2021, while its limited mobile and online presence reflects a company run for its own institutional vision.
7. Nintendo’s IP flywheel is too small and too lumpy
For licensing to change the P&L, McMillan wants “two to three movies a year, every year,” not occasional releases; similarly, he wants roughly a dozen parks and substantially more television. A few attractions and films do not yet create the recurring, high-margin universe embedded in the bull thesis.
Netflix’s announced deal to develop shows around Sega and Sonic IP offered his preferred model: Nintendo could use an arm’s-length licensing deal while others fund distribution. Instead, its insistence on going alone keeps output scarce and the economics lumpy.
Walker worried that scarcity is consuming nostalgia without replenishing it. His young daughter already knows Mickey Mouse despite limited television exposure, whereas Mario and Zelda lack comparable omnipresence; millennials will retain affection, but neglected children can become 22-year-olds with no inherited attachment.
8. Pokémon is the blueprint Nintendo only partly owns
Both speakers treated Pokémon as a particularly durable property. Games remain strong, but cards, toys, and collectibles give younger audiences many ways to participate; McMillan admitted he never expected Pokémon cards to endure and said, “More power to them. I didn’t see that coming.”
The economic limitation is ownership. Walker estimated that Nintendo holds roughly 35%, and therefore Nintendo does not capture all of the consumption occurring outside games; McMillan wished it owned 100% because the franchise could then move Nintendo’s consolidated results much more powerfully. McMillan also said he believed Pokémon Go had been sold to a gaming company he thought was owned by a Saudi conglomerate.
Walker viewed that incomplete capture as proof of brand health, not a flaw in Pokémon itself. Its entrepreneurial ecosystem shows what Mario and Zelda could become if Nintendo pursued licensing and non-game experiences more aggressively; McMillan agreed it is “the ideal,” but not yet enough to support a two-year Nintendo holding period.
9. Spotify’s label reset changed McMillan’s mind
McMillan framed his Spotify thesis as a mea culpa: he missed the stock from roughly 2024 after assuming labels would perpetually hold margins hostage and Apple’s platform tax would remain burdensome. His piece calls Spotify “a quiet compounder that I will never underestimate again.”
The 2024–2025 label renegotiations were the turning point. Spotify’s royalty rate declines as subscriber growth and a basket of related metrics improve, aligning the ecosystem around expansion; Walker’s less diplomatic interpretation was that Spotify won and can increasingly tell labels, “It’s our way or the highway.”
Scale now matters more because earlier alternatives such as Tidal and Deezer have fallen away. Apple Music, Amazon Music, and YouTube Music remain, but Spotify defended its position against all three and emerged as the clear leader; McMillan regards YouTube as the most important surviving threat.
Label concessions can also arrive through marketing. In radio, paying for spins evokes illegal “payola”; digitally, playlist placement and algorithmic nudges can be sold as promotion, lowering Spotify’s royalty burden while giving labels access to what McMillan called one of music’s most valuable advertising surfaces: the Spotify homepage.
10. Premium, podcasts, and audiobooks now support Spotify’s margins
Advertising has underperformed, and its share of Spotify revenue has fallen—the opposite of traditional media, where free, ad-supported consumption often dominates. McMillan still lists that weakness as a risk, but premium revenue has continued growing at a mid-teens rate for much longer than he expected.
Podcasting changed from trophy-deal excess to a more disciplined business. Joe Rogan may have earned his economics, while deals such as Prince Harry and Meghan were shorthand for the broader overpayment; Spotify subsequently pulled back enough for podcasts to move from “a money pit” toward a positive business.
Audiobooks add both engagement and direct monetization. Management said sales of extra audiobook credits or listening hours reached roughly a $100 million annual run rate unusually quickly, though the company does not disclose the figure separately; that is a new revenue stream layered onto the subscription rather than a replacement for music.
McMillan sees operating margins around 14% on a trailing basis, a credible path to 20% by 2030, and potentially 30% beyond that. With earnings and cash flow compounding near 20%, rising buybacks, and no assumed multiple expansion, he believes rolling estimates forward can produce 25–35% upside.
11. Spotify is cleaner, but Netflix may have the longer runway
Walker pressed on Spotify’s roughly 40× earnings valuation against low-double-digit revenue growth, AI-enabled portability of listening histories, and Daniel Ek’s move from CEO to executive chair at the end of 2025. McMillan called AI a net positive but over-discussed, citing Spotify’s rights and clearances to create remixes; he will worry more when an AI song dominates the Hot 100.
On leadership, McMillan argued CEOs receive too much credit and blame, like quarterbacks, and Spotify is now a scaled engineering platform capable of being steered by a less visionary operator. Walker’s counterexample was the extreme right tail—Tom Brady, Patrick Mahomes, peak LeBron James, Mark Zuckerberg, or Elon Musk—where rare talent remains underpriced.
Netflix offers comparable low-double-digit revenue growth and stronger apparent value at roughly 18–20× earnings. McMillan sees low-to-mid-30% operating margins reaching 40%, high-teens-to-20% earnings growth, and a uniquely global service—besides YouTube—that keeps extracting more value from its existing library. Walker’s framing of the moat was that Netflix can price content over a potential audience he described as 1 billion users, versus smaller bases for rivals.
McMillan also sees Netflix picking off some of the best YouTube stars, sometimes through exclusive deals and sometimes nonexclusively, effectively using YouTube as a pilot season.
The AI disagreement remained unresolved. Walker sees rapid progress enabling low-labor original lookalike sitcoms within roughly two years; McMillan sees formulaic media as difficult to reproduce because templates do not guarantee the creative execution that provides “that last little 2% that makes it magic.” More immediately, Netflix’s roughly 19 million logged-in viewers for an Australia NFL game versus YouTube’s roughly 17 million free viewers for Brazil showed its ability to absorb television audiences and unlock sports advertising.
Spotify nevertheless wins McMillan’s near-term conviction because it faces fewer irrational competitors and has a cleaner glide path toward 30% margins. Netflix competes directly with permanent rival YouTube and irrationally persistent media companies, although over five years or more it could become an entertainment super-app, bundle rival services, take a cut, and perhaps earn a 30× multiple. Walker noted that the valuation comparison is imperfect because Spotify is net cash while Netflix has some leverage.