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March 18, 2015

Investors cheer Nintendo move to smartphones

Shares in Japanese video game maker Nintendo Co on Wednesday notched their biggest daily gain since listing as investors cheered the decision by the creators of Super Mario to venture into smartphones in a bid to retain users. 

The stock ended limit-up, or 21 percent, at 17,080 yen ($141), a day after Nintendo said it would develop mobile gaming apps with online gaming firm DeNA Co.

It was the stock's biggest daily gain since Nintendo became public in 1983, adding some $4 billion to the company's market capitalization. Nintendo is now worth $24 billion.  

"Finally, Nintendo has turned a corner and embraced a huge strategic shift," said Jefferies analyst Atul Goyal, who raised his recommendation on the stock to "buy" from "hold" and its price target to 30,000 yen from 12,400 yen. 

Investors have long called on Nintendo, makers of the Wii U and the portable 3DS, to shift its focus to mobile devices after losing customers to both smartphone gaming app makers and console rivals like PlayStation maker Sony Corp and Xbox maker Microsoft Corp. 

The company had so far resisted these calls, pinning hopes on hit games such as "Mario Kart 8". But in January, it halved its operating earnings target for the current fiscal year to 20 billion yen ($169 million), citing weak 3DS sales. 

The move into smartphone apps could further dent console sales, some analysts said, despite assurances by President Satoru Iwata that Nintendo was committed to making gaming machines.

Nintendo, however, may be shifting away from hardware, with Iwata saying it was developing a new gaming platform, the NX, as well as an online membership service to be launched this year.

"Nintendo is not in a position to simply drop its legacy console businesses given the investments made in software," said CLSA analyst Jay Defibaugh. "But the writing is on the wall."

Defibaugh forecast Nintendo to exit the console business in three to five years.

Before the tie-up with DeNA, Nintendo's shares had fallen over 30 percent in the past four years, lagging a more than doubling in Tokyo's benchmark Nikkei index.

DeNA shares, heavily shorted prior to the announcement, also rose on Wednesday limit-up to 1,707 yen. The company, which mainly develops games played on browsers, had also lost market share in the past two years as users moved to mobile apps.

($1 = 121.2900 yen)