Despite What You May Have Heard, Apple Isn't a Pokémon Go Play
With the company getting a 30% cut on all App Store sales, Apple (AAPL) - Get Report is probably quite happy to see hordes of Pokemon Go users spend millions on Lure Modules, Lucky Eggs and other in-app purchases as they scramble from one PokeStop to another. But expecting Pikachu and his pals to significantly move the needle for the world's most profitable company may be asking too much.
A report from Needham analyst Laura Martin made waves on Wednesday for arguing tjat Pokemon Go -- estimated by analytics firm SensorTower to have seen over 30 million downloads and produced over $35 million in revenue since its July 6 launch -- could produce $3 billion of "incremental high-margin revenue" for Apple. Martin observes the Candy Crush franchise produced $1.1 billion and $1.3 billion, respectively, in revenue in 2013 and 2014, that Pokemon Go's ratio of paid users to total users is 10 times higher than Candy Crush's and that iOS (owing to favorable demographics) accounts for an outsized portion of in-app spending.
Relying on an assumption that the game, which reached 6% penetration in the U.S. after just 10 days, will reach 20% penetration in the U.S. and elsewhere at "maturity," and that Apple will get revenue of $0.05 per user per day, Martin thinks the company could reap $3 billion in revenue from Pokemon Go over the next 12-24 months via its 30% cut. Martin terms this an "upside case" scenario.
But it's worth remembering the euphoria that has swelled around Pokemon Go over the last two weeks probably won't be so strong a month from now. Assuming a 20% penetration rate feels aggressive, as does expecting the current rate of spending per user to continue as the game's initial fervor dies down and Pokemon Go's base begins featuring a greater percentage of casual users. That's particularly true since Pokemon Go, unlike most mobile games, requires its users to actually move around in the real world to accomplish things.
Moreover, as far as App Store and Google Play sales go, some of the revenue produced by Pokemon Go is doubtlessly cannibalizing revenue that would've otherwise gone to other games. Presumably, many of the mobile gamers buying Lure Modules and Lucky Eggs have previously made in-app purchases while playing Candy Crush Saga, Clash of Clans and other hit titles.
Then there's the whole matter of just how massive a company Apple is. We're talking about a firm that produced a net profit of $53.4 billion in its last fiscal year on revenue of $233.7 billion. Even if $2 billion in non-cannibalizing Pokemon Go revenue was somehow produced over the next 12 months, it would be equal to less than 1% of Apple's sales. And for that matter, Martin's "upside case" scenario only sees Pokemon Go delivering a modest "$1/share of added value" to Apple's shares.
As the first example of an augmented reality title to see massive download and in-app purchase activity, Apple can definitely take heart in what Pokemon Go's success appears to show about the long-term potential of augmented reality apps in general. The same goes for Alphabet's (GOOGL) - Get Report Google, which profits from Pokemon Go not only via Google Play revenue, but also through its stake in Pokemon Go developer Niantic and the game's use of Google's cloud infrastructure.
Just don't invest in either company on the grounds that it's a Pokemon Go play.
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