Video Games

Why it's not game over for Nintendo yet

The new Nintendo game console Wii U is displayed at the Nintendo booth during the Electronic Entertainment Expo on June 7, 2011 in Los Angeles, California.
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Nintendo shares plunged 18 percent on Monday following a worse-than-expected profit loss warning on Friday, but analysts told CNBC that investors shouldn't give up hope yet as the company could be on the verge of a paradigm shift.

Shares in the Japanese headquartered gaming firm lost nearly a fifth of their value on Monday, falling as low as 11,935 yen ($114.62), after the company slashed its global Wii U sales forecast for the year to March 31 by almost 70 percent, heaping pressure on the firm to ditch its policy of not licensing its software to rivals.

"The most compelling case I've heard for this is that these results are so bad, and this failure by the President Satoshi Iwata is so catastrophic, it's going to motivate some kind of shareholder activism or some kind of paradigm shift in Nintendo," said Benjamin Collett, head of Asian equities Sunrise Brokers.

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"That might be the case but I don't think it's worth anything until it reaches about 6,000 yen… give it a few weeks," he added.

Nintendo, which is famous for its colorful Super Mario and Donkey Kong characters, was once at top of its game, but the company has fallen on hard times in recent years, amid poor hardware product sales.

Which console wins?

Many analysts have turned bearish on the stock, arguing that the company has vastly misjudged the switch towards smart phones and tablets in the industry, and too fiercely protected its iconic characters and game franchises, only releasing games for its own hardware devices.

And in a sign of how worrying a position the firm is in, the company's president has spoken out about how the firm might have to make dramatic changes to adapt to this rising trend, by releasing its games and characters in some form on those devices.

(Read More: Nintendo clocksits highest US sales score in October)

"Overall, this is a negative development, with sales weaker than expected and costs rising. The company is facing a raft of issues, and there are question marks over how it should reform from here," said Yoshitaka Nagao, analyst at Nomura.

But according to Atul Goyal, analyst at Jefferies, Nintendo still has the potential to turn itself around.

(Read More: Nintendo CEO:'We Are to Blame' for Poor Wii U Sales)

"Nintendo still has an ace up its sleeve," said Goyal, who first published this view in July. "Ironically, that [the earnings miss] is good news as this will force a strategic change enabling it to offer its games (Mario, etc.) on mobile-platforms," he added.

"While almost all game companies now offer games on app-stores, Nintendo has so far ignored this paradigm shift, despite having some of the most valuable 'Entertainment Properties' (EP) in the game-industry," added Goyal.

Jefferies raised their price target on Nintendo to 29,000 yen from 26,550 yen with a 'buy' rating on expectations of a change in strategy.

(Read More: 10must-have video games this holiday season)

Nintendo's share price had recovered to 13,745 yen by Monday's close in Tokyo.

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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