Nintendo recently met with investors to go over their numbers from the past quarter (April 1st – June 30th), and hedge fund manager Gabriel Plotkin decided to use the opportunity to make some quick cash. Using a technique called short selling, the Melvin Capital Management manager essentially used $400 million worth of Nintendo shares to bet that the meeting would go poorly.
Nintendo’s stock value was high early in the year, but it has been steadily slipping since May due to concerns about low first-quarter sales. All of Nintendo’s heavy hitters are launching in the holiday window, so Switch sales have been lower than some expected. Plotkin believed that Nintendo’s value would drop again after the shareholders meeting.
To capitalize on this opportunity, he borrowed $400 million worth of Nintendo stock and sold it just before the meeting, making him “short” those shares. In theory, Nintendo’s stock tumbles, and Plotkin is then able to buy those shares back at a greatly reduced price, thus making money on the transaction.
Plotkin has been doing this since May with success, as Nintendo’s stock took a sharp hit around E3. However, this was by far his biggest gamble yet against Nintendo, and the biggest gamble anyone has made against them since 2013 during the lows of the Wii U era. Unfortunately for Plotkin, Nintendo has (at least temporarily) reversed their fortunes. A stronger than expected showing at the shareholders meeting caused Nintendo stock to surge nearly 7%.
So what does this mean for Plotkin? Bloomberg estimates that this particular transaction would deal about a $27 million hit to Plotkin. However, since he’s been successfully short selling since May, they believe he likely still comes out on top overall for the past three months. His biggest gamble backfired, but he made it from a comfortable position.