Investing Insights: The Impact Of Pokémon Go On Nintendo's Stock Market Performance

As the world hunts for Pokémon, investors are hunting for profits from the hugely popular new game "Pokémon Go." Less than a week after the game’s release, Nintendo's stock value surged by almost 50%, resulting in an impressive $15 billion increase in the company’s market value. On Friday, shares rose again. There is no question that the stock market believes "Pokémon Go" has significantly increased Nintendo’s value. But is the stock market correct?

The Rise of Nintendo's Stock Value

Only a few days after the launch of Pokémon Go, the stock market reacted vigorously. Nintendo's stock price skyrocketed, showing a remarkable growth of nearly 50%. This surge is largely attributed to the game’s immense popularity, capturing the interest of both gamers and investors alike. As a result, Nintendo's market valuation swelled by a staggering $15 billion.

This sudden spike in stock price illustrates the strong connection between gaming trends and stock market performance. When a game becomes a global sensation, companies associated with it can see their stocks rise rapidly. In this case, Pokémon Go has not just attracted players but also significantly influenced investor sentiments towards Nintendo.

What Does the Market Think?

The stock market's belief in Pokémon Go's contribution to Nintendo’s value can be seen in the continuous rise of shares. However, it's essential to analyze whether this optimism is justified. While the initial excitement can drive stock prices up, the real test lies in sustained financial performance.

Experts suggest that for the stock market's confidence to hold, Nintendo must deliver consistent revenue from Pokémon Go and other ventures. This includes not just the game's initial downloads but ongoing player engagement and in-game purchases, which are crucial for long-term profitability.

The Revenue Model Behind Pokémon Go

Currently, Pokémon Go is free to download on major platforms like Apple’s App Store and Google Play. While players can purchase add-ons and power-ups, the profits generated from these sales won’t go directly to Nintendo. Instead, the distribution of revenue involves several parties, including the game's developer, Niantic Inc., and the merchandising company, Pokémon Co.

Niantic, a privately-held company based in California, has developed and distributed the game. Pokémon Co., which is Tokyo-based, manages the merchandising aspects and states that it is the game’s producer. According to J.P. Morgan analyst Haruka Mori, Niantic and Pokémon Co. will likely split the game revenue after Apple and Google deduct their fees from the app stores.

Nintendo's Stake in the Success

Nintendo holds a stake in both Niantic and Pokémon Co., having invested undisclosed amounts in these companies. Additionally, Nintendo owns a 32% stake in the Pokémon Company. This means that while Nintendo may not receive all the direct revenue from Pokémon Go, it still benefits from the game's success through various channels.

However, for these investments to significantly impact Nintendo's profits, "Pokémon Go" needs to achieve a turnover of at least $140 million to $196 million per month. On the first day of release, the turnover was approximately $3.9 million to $4.9 million. Therefore, maintaining momentum in player engagement and revenue generation is crucial for Nintendo to validate the stock market's confidence in its future earnings.

Future Prospects with Pokémon Go Plus

Nintendo's strategy also includes launching a wearable accessory called Pokémon Go Plus, priced at $35. This device is designed to enhance the game experience, making it easier to catch digital creatures. If the company manages to sell 50 million units, it could see a significant boost in profits.

Reports indicate that Nintendo's store is already sold out of these devices, and users are reselling them at nearly ten times their original price on platforms like eBay. This high demand indicates a strong interest in Pokémon Go-related products, but the sustainability of this popularity remains to be seen.

Assessing the Long-term Impact

In the few days following the game’s launch, it’s still too early to determine whether Pokémon Go will substantially boost Nintendo's profits and align with the optimistic projections of the stock market. As the game expands its reach, especially with its upcoming release in Japan, one of the largest smartphone gaming markets, there could be further fluctuations in stock performance.

Ultimately, the long-term success of Pokémon Go will depend on how well Nintendo can leverage the game's popularity into consistent revenue streams. Investors will be closely monitoring the company’s performance in the coming months to see if the initial stock surge translates into sustainable growth.