
Nintendo Gets Extra Life from Runaway Success of Pokémon Go
For Nintendo (NTDOY) , Pokemon Go's enormous success will likely serve as a needed catalyst for the Japanese gaming giant to remind investors who's still a formidable player in the world of gaming.
The much-anticipated Pokemon Go has quickly become a sensation since it launched on July 6, sending shares of its stock soaring. Shares of its ADR are up nearly 35% in Monday afternoon trading to $27.98 a piece, a five-year high.
Pokemon Go has been estimated to have already been downloaded between 7 million to 8 million times on Android and between 20 million to 21 million times on iOS. While the game is free to play, users can buy virtual items within the game; SuperData Research estimates it has already generated over $14 million on iOS and Android since its launch last week.
"For Nintendo, it's a really positive sign," said SuperData Research CEO Joost van Dreunen via phone.
In recent years, Nintendo has faced many questions from its investors about what its role will be in the increasingly digital market and has also seen its marketing head Scott Moffit leave earlier this month. Some have even suggested that Nintendo should give up on its hardware and console businesses to focus on software, van Dreunen added.
"Here was a company that was seemingly losing audience, leaders and its grip in the industry," he said, adding that all of a sudden, Nintendo has made a surprise comeback. Revenue has steadily declined since 2014, clocking in ¥571.7 billion ($5.6 billion) in 2014, ¥549.8 billion ($5.3 billion) in 2015 and an estimated ¥504.5 billion ($4.9 billion) in 2016. Before its recent spike, Nintendo's ADR was down more than 14% over the previous 12 months.
Last October, Nintendo and Alphabet (GOOGL) - Get Report announced they were investing up to $30 million in Niantic to work on Pokemon Go. Niantic was formerly part of Google, but was spun off as an independent entity in August as part of the latter's restructuring into Alphabet.
"It reaffirms Nintendo's control of the industry," van Dreunen added, explaining that for Nintendo, the lack of performance hasn't exactly been due to its lack of quality. It simply hasn't had to react as quickly to all the sector-wide changes as some of its smaller, younger peers.
At the same time, as the mobile games market starts to experience slower growth, franchises will become much more valuable, according to van Dreunen.
"I knew Nintendo was going to go up. And it will keep going up," said Jim Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio. "Why? Because people think it will eventually impact Nintendo even though it's free."
Pokemon Go's success could even affect the stocks of carriers like Verizon Communications (VZ) - Get Report and AT&T (T) - Get Report , who could experience increased demand for data, Cramer explained.
"The craze is powerful enough that it's going to move the stocks," Cramer said.
While it's still too early to tell how much of a material impact Pokemon Go will have on Nintendo, it could serve as a good proof point that highlights the value and relevance of Nintendo IP, Benchmark Co. analyst Mike Hickey via phone Monday
"It's a break-through moment for Nintendo," Hickey said, adding that the augmented reality, or AR, aspect of the game is a key differentiation point for the company.
Nintendo, which has spent years telling its investors that it wasn't going to develop smartphone games and instead planned to further develop console and related hardware business, laid out a game plan a little over a year ago that focused on taking its IP to mobile in order to reach a new audience.
The company likely recognized that it could no longer ignore serving the mobile market, according to Hickey.
"Strategically, they seem to be getting traction," he added, also wondering whether the new users from Pokemon Go could carry over to Nintendo's crop of console users. "It's a big, big win for them in a hard, competitive market."
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