Pokémon Go: Should you invest in Nintendo? Investors are set for share price slump, but longer term virtual reality games will prove a winner
The craze for newly-released mobile game Pokémon Go has sent shares in co-owner Nintendo up 75 per cent.
Pokémon Go has been downloaded over 15m times since it was released last week. It currently ranks as the fastest adopted game in history. So far, it’s available to play in the UK, US, Germany, Australia and New Zealand, but will soon be released in 200 countries.
The success of the game means Nintendo has doubled its market capitalisation up to $42bn, which makes the company more valuable than Yahoo, Sony and Glencore.
Pokémon Go is based on the creatures made famous by a cartoon series of the same name in the 2000s.
Players wander the streets with their phone in hand looking for Pokémon creatures to capture and check in at Pokéstops – on top of local landmarks – to earn bonuses and items.
After amassing enough points, players train and fight their Pokémon animals in local gyms – also situated in public places such as pubs, outdoor monuments or office buildings. It’s hugely addictive because anywhere a player logs into the game is a potential hunting ground for Pokémon, and there are 141 to collect – possibly more as Nintendo drip-feeds special characters into the game.
Read more: Beginner's guide to Pokémon Go
WHO'S MAKING THE MONEY?
It’s clear app developer Niantic, which created Pokémon Go, is onto a winner. But it’s difficult to discern exactly who is making money out of it. Confusingly, Niantic was spun out of Google last year and is part owned by Google, Nintendo and The Pokémon Company. Nintendo also owns a 32 per cent stake in The Pokémon Company.
“We don’t know the terms of the spin-out, or how much of Niantic is owned by each. We don’t know whether there is a Google licence fee associated with the location technology. Everything is a rough educated guess,” says Mark Hawtin, investment director at GAM.
Although the share price has risen rapidly, there are also a large number of shorts, or bets that the share price will fall. “The Japanese retail investor is well-known for loving a craze,” Hawtin says.
Neil Wilson, markets analyst at ETX Capital adds: “We’re in bubble territory now. What goes up this fast usually comes down with a bump.”
No doubt the share price will drop in the short term, but over a longer timeframe, the success of Pokémon Go could prove invaluable both for Nintendo and other virtual reality games companies. Just a few months ago, Nintendo cut its yearly profit forecast by over a third, citing a sales slump. It plans to release four more smartphone games in the current financial year, and says mobile gaming will boost annual operating profit by a third.
“Pokémon Go is a game changer for Nintendo. It’s a clear sign that it’s embraced the smartphone gaming revolution,” Wilson says. “Nintendo also has some aces up its sleeve with characters like Mario and Zelda, which could be the next stars of mobile gaming. It is better positioned than other [companies] for sure.”
Monetising Pokémon Go will be the next challenge. Initial fans are plentiful, but how many of them will make in-app purchases to enhance their prospects in the virtual world remains to be seen. Pokécoins can be bought in bundles from 79p and £3.99 up to £79.99, and they’re used to buy items.
The computer games sector is notorious for making hits which later trail off in popularity. King, owner of highly addictive Tetris-like game Candy Crush Saga, was taking in $139m in revenues each month at the peak of the game’s success. Candy Crush revenues have since dwindled to $39m. Other industries are subject to the fashions too, and it’s the pursuit of a hit on which those businesses thrive.
Read more: Lunch with Candy Crush creator goes for £18,000
One of the problems with investing in technology is that real game-changers come along very infrequently.
“We have come to the end of the technology revolution. It started with the internet in the 1990s and was followed by the smartphone in the 2000s. Now there is no obvious successor,” says Markus Stadlmann, chief investment officer of Lloyds Banking Group.
Many people have pointed to robotics and biotech as the next distrupters, but realistically they are still years from being daily parts of many people’s lives. Could augmented reality games and other paraphernalia be a more viable contender?
“The excitement is far more indicative of the potential for augmented reality and location based advertising than for Pokémon Go,” says Hawtin.