Nintendo’s Pokemon GO game has been released for approximately three weeks but has already amassed more players than Twitter and Snapchat see regular users. Pokemon GO is an augmented reality game, whereby players must locate a Pokemon on the map and travel to its location. When they are close, their smartphone switches to the view from the camera with the Pokémon monster showing on the screen. These must be captured by flicking a Pokemon Ball at it. Once captured, monsters may be trained (by visiting a Pokemon Gym) in order to battle with other players. Furthermore, players can also visit Pokestops, which are real world locations in order to top up player equipment.
The game was released in stages across the world for a number of reasons, including how the Pokemon GO servers appeared to unable to cope with the massive take up of the service and also how the game attracted the attention of various hacker groups. Nintendo’s share price has been supported by the massive uptake of the game as the market because investors believe the Japanese entertainment company will benefit from sales of in-app items. However, Nintendo has announced that although the company has a business interest in the Pokemon GO application, its income from the game would be limited and that it did not intend to revise its earnings outlook at this time. In other words, Nintendo does not believe that the massive interest in playing the Pokemon GO game will make a material difference to its earnings and profits at this time. This announcement caused the Nintendo stock price to tumble by 17.7% or 5,000 Japanese yen, which is the maximum permitted drop in a share price trading in Tokyo in a single day. This is the stock’s largest fall since October 1990.
Opinions are divided as to why Nintendo made the announcement. Some industry experts believe that Nintendo is deliberately downplaying the impact of Pokemon GO on profits and that the game and franchise will be a key part of their strategy going forwards. Stockmarkets tend to overreact to news both on the positive and negative sides: Nintendo’s stock price rally might have been an overreaction to the success of Pokemon GO, but likewise the set back could be an overreaction to the less-than-positive news. However, the stock price is still some 60% higher after the fall compared with the time before the game was released (although it is possible the stock will be squeezed lower as there is a maximum drop limit on Tokyo traded stock). Investment professions have said that Nintendo has proven itself as still capable of producing desired products based on its existing portfolio of franchises, such as Pokemon, Mario and Zelda, and that the business stands to benefit from accessory sales (such as the Pokemon GO Plus, an accessory designed to alert players to nearby Pokémon monsters without them having their smartphone turned on). Nintendo has downplayed this news and has stated that its earnings expectations already includes accessory sales.
Regardless of the impact of sales of either online purchases or hardware accessories, it is difficult for the market to assign a value to the fact that “Nintendo” and “Pokemon” have generated considerable interest from the press. The game has encouraged players to pick up their smartphones en mass and venture into the real world to play, and there are likely to be considerable opportunities going forwards. It remains to be seen how significant an impact this will make on the company and their next earnings release, scheduled for Wednesday, will not reflect the impact of Pokemon. We are going to have to wait another three months.