Gabriel Plotkin, head of Wall Street hedge fund Melvin Capital Management, has accumulated a nearly $400 million short bet against Nintendo Co. Ltd (TYO:7974). In the firm’s latest filing with the Tokyo Stock Exchange records show the firm is now short 1.2 million shares which is about 0.8% of Nintendo’s total outstanding stock. The reason?
We don’t know exactly. Both Plotkin and his COO David Kurd declined invitations to explain its reasoning for shorting Nintendo. It probably has something to do with Nintendo Switch sales starting to slow down.
Plotkin’s firm Melvin Capital has made a name for itself quite quickly. 2015 saw the hedge fund complete its first full year of operations, stunning the world with a 47% overall return which placed Melvin Capital at number 2 on Bloomberg’s rankings of hedge funds with at least $1 billion in assets.
Since then Plotkin and Co. have done well every year via bullish positions in Amazon(NASDAQ:AMZN), Microsoft(NASDAQ:MSFT), and EA(NASDAQ:EA).
While Melvin Capital may seem to know what they are doing, remember that no one is error-proof. The firm has a roughly $250 million position in EA, yet as we reported a few days ago, EA missed the boat with its earnings. The video game producer fell well short of revenue expectations and the stock sank like a rock today, tumbling almost 6%. Melvin Capital would have taken a $15 million loss today. Nintendo investors may be able to breathe a sigh of a relief with that knowledge in hand.
Nintendo stock prices have continued to tumble since May, currently hovering around 20% down from prices seen two months ago. This all might prove to be short-sighted as many analysts don’t see Switch sales slowing down in the near future.
After all, the Kyoto-based game maker may just be getting started. The Switch is barely a year old with four or five more years to go and as installed hardware units increases, so too will the higher margin software sales numbers as well.
Only time will tell if Mr. Plotkin’s near half-billion dollar bearish bet against Nintendo pay off or not.
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