Why a huge company as Nintendo still need investors

Discussion in 'General Off-Topic Chat' started by dreampeppers99, Apr 21, 2011.

  1. dreampeppers99

    dreampeppers99 GBAtemp Regular

    Jul 21, 2010
    I read a couple of days ago that Nintendo was meeting new investors to his new Console.

    OK, but why a huge company with HUGE AMOUNTS OF PROFITS still need investors?, why they just don't use their money? What are the advantages of have investors ?

    I mean: If a X_GROUP wants to enter on this new busines and be an investor they do that thinking in HOW MUCH profit they can retrieve from that... isn't?

    The only thing I thought more reasonable was: The investor put their money over the risk of loss the investiment... so Nintendo is not obligatory to give back the initial money invested. Anyone knows the reason?
  2. DJ91990

    DJ91990 Dark-Type Trainer

    Feb 9, 2009
    United States
    Oakwood Region
    Think about it, you are gathering investors to give you money for making a new system. A new system that may fail, or succeed. If you were to invest your own money into a new game system just to have it fail, it could cause your company to crash. If you take investors' money, money that you don't need to refund, if the system fails you don't have any losses and, if the system is a success you make more profit! Simple business logic.
  3. godreborn

    godreborn GBAtemp Guru

    Oct 10, 2009
    United States
    probably because nintendo is a stock company since no one person has enough money to run such a large corporation. plus, who'd want to risk going bankrupt constantly on one failed or bad idea.
  4. dreampeppers99

    dreampeppers99 GBAtemp Regular

    Jul 21, 2010
    thank you too.
  5. Rydian

    Rydian Resident Furvert™

    Feb 4, 2010
    United States
    Cave Entrance, Watching Cyan Write Letters
    Research and Development costs huge.
  6. FAST6191

    FAST6191 Techromancer

    pip Reporter
    Nov 21, 2005
    United Kingdom
    I do not think we have time to cover investment in detail (not to mention my skills in the matter are not up for it) but

    "The investor put their money over the risk of loss the investiment... so Nintendo is not obligatory to give back the initial money invested"

    This is standard practice in investment, indeed it could even be argued that is the whole point (governments will often tax people less for profits made in such ventures- here in the UK 19% for stock market stuff vs 20% from hard graft (standard earnings) if memory serves).
    There are all sorts of tweaks in the way of investment agreements and things like fixed shares (companies will usually dilute a share pool but you can get investment agreements like "by paying this we own X% of the company and always will) and concepts like short selling, simply playing the market (or doing something like high frequency trading) and more generally investment firms of various flavours but in general if you put money into the stock market you run the risk of losing the lot; there is a bit of recourse in the event of gross negligence or illegal action (even then it usually only happens after all the money has been lost and the chance of getting everything back is not good) but it is otherwise akin to gambling.

    You also run the risk of confusing dividends (percentages of profit paid to investors) with share price - Apple quite famously do pay dividends but it is then hypothesised that by not paying them the profits are kept in house and thus the share price itself then rises meaning those that bought in low get to sell high and make a profit.
    Equally large companies like Nintendo might effectively have several divisions which despite being under the control (at some level) of a central entity function autonomously the rest of the time- I am far too lazy to look up an investor profile but you have Nintendo of America, Nintendo of Japan and Nintendo of Europe along with any captive developers and whatever else they have going on.
    I am not entirely sure about how the practice works but you can also invest in new ventures from an existing company

    Similarly profits do not necessarily mean liquid assets (if you have to say pay down debt you carried over from previous years or something)- gaining new investors is often an easy way to drum up some cash in short order (the other main option aside from sale of assets is to tap your existing investors for more cash). That is not to say it does not come with downsides- if you sell more shares you do not have you have to make more which reduces the amount your initial share holders (unless they had an X% agreement or something) get when things are paid out (and often makes them angry which is not usually considered a good thing) or if you do have them and sell those you do not necessarily get to retain as much profit.

    On the flip side this could also be a public front for a company Nintendo are courting- similar to how many places will have to advertise job vacancies already filled from internal candidates Nintendo might have to put on a show for the public if for instance they found a company with new IP they want. They make a song and dance in public and behind the scenes the small company gets a share or something in the new venture (usually they just get bought out but you never know). In many cases appearance is everything in the stock market (see valuations of companies being far about their assets and projected profits for the foreseeable future) and this could be part of that.

    Equally I do not think it applies so much to larger companies but for smaller companies you are often told you always want to be courting new investors- see the mess/debate that is facebook ownership/who holds controlling interest in the company.

    Basically there is a reason accountants and finance types have to actually study long and hard to do what they do. I would say read up but frankly unless you actually want to either invest (generally people advise against emotion when playing stock markets) or do it for a job or something there are better things you can do with your time.