Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

When consumers the world over started chasing Pokemon characters this summer, driving up shares of Nintendo, hedge funds were quick to hunt down short-selling opportunities.

Those who timed it right were handsomely rewarded with a 26 percent drop in the stock over two weeks, more than enough to justify their two and 20.

Now that Nintendo has rallied as much as 27 percent since its Nov. 9 intraday low, the shorts don't seem so eager to bet against it.

Nintendo Shares Rallied...
The stock is at its highest since July's Pokemon Go-driven peak, having climbed as much as 27 percent from its intraday low almost three weeks ago
Source: Bloomberg

While short interest has trended up a little over the period, it has yet to break through the 55,000-share figure that was breached at least four times in the past two months. In fact, the 20-day moving average of outstanding short-sold shares is below the level seen just two weeks ago.

...Yet Short Interest Is Tame
Bets against Nintendo look mild compared with peak levels over the past six months
Source: Bloomberg

To be sure, some punters will still believe Pokemon Go was just a fad that has no future and that Nintendo's console business faces an inevitable decline.

At the same time, there are investors such as Platinum Asset Management Ltd.'s Kerr Neilson, who told Bloomberg News last week that he believes "they're going to be a winner." Sell-side analysts certainly think so, positing that next month's release of Super Mario Run for the iPhone, new Pokemon titles such as Sun/Moon and robust sales of hardware such as the handheld 3DS will all help Nintendo increase net income more than threefold in the year through March 31.

On the technical side, Monday's early Tokyo trading had the stock above 27,000 yen ($242) for a fifth straight day -- a feat it hasn't managed since the July craze. Taming the rise is the fact that reduced short interest lessens the chances of a sharp short-squeeze rally where those who've borrowed shares to sell must buy them back to cover their positions.

The long and the short of it is that the longs now look more committed to Nintendo than the shorts.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Hedge funds generally charge 2 percent of assets under management, and 20 percent of profits.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net