The Pokemon GO craze has nearly doubled Nintendo's Tokyo-listed shares, with effects rippling to other ancillary products. Roth Capital analyst Dave King, for example, believes that InvisibleShield maker Zagg's (ZAGG) - Get Report earnings per share will rise about 15% due to the game, although he questions the long-term impact. Zagg shares rose 21% last week.
BMO Capital Markets analyst Gerrick Johnson believes that Pokemon Go is more likely to "adversely affect engagement for PC and console game makers," such as Activision Blizzard(ATVI) - Get Report , Electronic Arts(EA) - Get Report and Take-Two Interactive Software(TTWO) - Get Report , but traditional toymakers like Hasbro and Mattel could also take a hit in the short term.
Like other analysts, he lauded the game's use of augmented reality, or AR, technology, but doesn't know how long the game's popularity will last.
"AR has been around for a while," Johnson added by phone. "To this point it's been a clever technology that really figured out a way to monetize. I've seen it in toys for a while, and when companies have used it it's cute and clever. This is the first viable use of augmented reality in the entertainment space that I've seen. You're going to see copycats. But we just don't know how long this thing is last."
However, it's difficult to disentangle the game's AR technology and the nostalgia factor from its popularity. "It seems to be older folks playing who knew Pokemon growing up, so it's unclear who it's going to impact," he said.
Johnson is pessimistic for the time being about the traditional toy companies' ability to use AR technology. He questioned whether toy companies like Mattel and Hasbro, whose products appeal primarily to kids, would be able to access that core market through mobile games.
"A lot of mobile games are played at doctors' offices or bus stops, where you don't see a lot of kids," he said. "And I don't think a guy playing 'Call of Duty' is going to put it down to play Pokemon."
Mattel and Hasbro customers may be too young to play Pokemon GO, but AR technology could be a huge boon if the companies figure out how to adequately deploy it.
Disney(DIS) - Get Report certainly has high hopes for AR and its cousin, virtual reality. On July 11, the House of Mouse announced the late-stage startups that had been admitted to its 2016 Disney Accelerator class. Two of the nine venture-backed companies focus on VR and AR. One, Jaunt, has raised over $100 million in VC financing, while the other, OTOY, counts Alphabet(GOOGL) - Get Report executive chairman Eric Schmidt and William Morris Endeavor co-CEO Ari Emanuel among its backers.
And in February 2015, Alphabet subsidiary Google bet on kids' appetite for AR, acquiring kids' augmented reality app startup Launchpad Toys for undisclosed terms.
Other companies in a variety of sectors are also betting that AR will appeal to customers. Microsoft(MSFT) - Get Report is working on a Minecraft AR app for its HoloLens headset. Even furniture giant IKEA has an AR feature on its app, which allows users to superimpose furniture onto room settings to see how they'll look.
Indeed, Jefferies analyst Trevor Young predicted in a recent note that Hasbro would expand its mobile gaming presence through acquisitions. "Digital gaming is an even larger piece of the toy industry than previously thought and Hasbro appears to excel in this area vs. peers," he wrote on June 22. "Further M&A in digital gaming would likely be a positive for HAS given that it's another medium to leverage its brands, the category has seen robust growth, and because digital gaming typically has higher GM/OM than the total entertainment and licensing segment."
On July 13, Hasbro acquired Irish animation company Boulder Media for undisclosed terms, a move CEO Brian Goldner said in a statement would help the company to reinvent "traditional modalities of animation production, both creatively and financially."
Hasbro will release its second-quarter results on Monday. Analysts expect the company to earn 39 cents per share, up from 33 cents per share in the same quarter last year. Revenues are expected to rise 8% year-over-year to $860 million.
Johnson is more bearish, expecting earnings of 32 cents per share on revenues of $782 million, a 2% year-over-year decline. He wrote in a July 15 note that he expects some of Hasbro's flagship brands to underperform.
"We are concerned that a slowdown in Disney Princess sales after a robust start in January, softness in My Little Pony, and disappointing Star Wars sales could have led to a reduction in replenishment orders for these products in the second quarter," Johnson wrote. "As it pertains to Star Wars, we believe that with collectors now being satiated, continued momentum has depended on the purchasing by kids. This is where we think there could be disappointment, as we see very few kids buying Star Wars toys."
When Mattel reports Wednesday, however, Johnson is more optimistic. He forecasts a loss of 2 cents per share, better than the consensus estimate of a 4 cent per share loss, but a sales decline of 9%, to $900 million, worse than analysts' expected 5% decline, to $934 million.
Mattel's losses stem in part from the loss of a major contract. Rival Hasbro wrested the rights to manufacture Disney's Princess and Frozen dolls. Disney Princesses accounted for 7%, or about $440 million, of Mattel's total 2015 sales.
Another potential headwind is currency.
"Mattel is the most international of the companies we cover, with over 50% of sales coming from outside the US," Johnson wrote. "The concern is that declines in the Pound and Euro will adversely impact reported sales, but also that demand could be hurt."
He believes these concerns are overblown, however, pointing out that the pound and euro declines are outweighed by appreciation in the yen, real and peso.
"Despite a weakening in the second quarter, we estimate that the weighted basket of currencies that Mattel sells in are actually 1.5% better than at December 31, around when the company likely put together its 2016 financial plan," he wrote.
By Johnson's analysis, 6 points of the 9 point sales decline he expects this quarter can be attributed to the Disney Princess loss, with another 2 points coming from currencies.
While the effects of Pokemon GO on conventional toy stocks are yet to be determined, Johnson is fairly confident in one potential beneficiary, albeit in a more traditional sort of toy.
"I do know that none of those companies make Pokemon toys," he said. However, "Build-A-Bear Workshop(BBW) - Get Report has Pikachu, and they're going to have some other Pokemon characters coming through."
With Build-A-Bear two months into a strategic review, the stuffed animal company's potential suitors must hope that Pokemon fever hits a new generation.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long GOOGL.