As I understand it (and please correct me if I’m wrong for those who know different), a Short Bet is like betting on the horses - you throw down money that says horse X will do Y. If you’re right and horse X did Y you get paid, if you’re not and horse X did Z then the bookie gets paid.
In this case a hedge fund manger has bet against Nintendo stock to the tune of $400 million which means he believes Nintendo’s stock is going to tank lower than it has ever been - the difference between his bet and the current stock value is actually of interest as well because its one of the largest gaps between actual value and short bet in the the few decades of this kind of trading.
The head of New York hedge fund Melvin Capital Management is making a $400 million short bet against Nintendo, according to Bloomberg.
Gabriel Plotkin’s fund was short 1.2 million shares, or about 0.8% of Nintendo’s outstanding stock, according to the latest filing with the Tokyo Stock Exchange. Bloomberg said it’s the largest such trade against the company since at least 2013.
“Investors have been baffled by the sudden swoon and Plotkin’s position may add to their concerns,” Bloomberg’s Yuji Nakamura said. “The stock’s poor performance has dominated coverage in the financial and gaming press, and discussions on social media, raising questions about whether long-term shareholders are losing faith in the outlook for the Switch game console.”
Unless I’m reading it incorrectly and I have completely overestimated how well Nintendo seem to be doing, they don’t seem to be in dire straights. From the article:
Nintendo had an impressive 2017 financially thanks to the launch of the Switch. It sold an estimated 17.79 million units, beating its own prediction of 15 million. The company believes it can sell 20 million more this financial year. Operating profit reportedly rose by 505% to 178 billion yen and revenue was up 116% to 1.06 trillion yen.
The article goes on to mention the drop Nintendo had after the recent E3:
But, the company inexplicably suffered its biggest two-day drop since December 2016 in June during E3, Bloomberg reported. Some analysts blamed it on a poor Switch lineup. Nintendo refuted those claims. Shares have now fallen as much as 27% from their peak in May. Bloomberg said Plotkin increased his short position on both days after E3 and continued short-selling in the following weeks.
Nintendo shares closed at 37,540 yen Monday, down 8.9% for the year. The company will release its first quarter earnings report on Tuesday after the market closes.
From what I’ve read the stock drop was in response to Nintendo pushing back two of their first party games and then not announcing any new first party releases, only third party stuff. I’m not that heavily invested in Nintendo to comment on how true that is but it sounds possible given that Ninty fans show pretty staunch, almost rabid support for them.
On a side note, I found out about this from a mate who I’d just gotten to watch ‘The Big Short’ which is an excellent film about the American housing/global economic crisis based on actual events that I recommend you all watch because its great and pretty funny, here’s a clip: