Nintendo shares fall as game company says Pokemon Go won't lure big profits
Nintendo only owns 1/3 of Pokemon company, and many others have stake in future profits
Shares in Nintendo plunged almost 20 per cent on Monday after the Tokyo-based video game company admitted it won't see much in terms of profit from the global Pokemon Go craze.
Shares in the Kyoto-based company were off by about 5,000 yen after Nintendo put out a press release clarifying its stake in Pokemon Go, the mobile game that became the fastest app to ever reach 10 million downloads, and has since risen to 30 million downloads within barely a week of launch.
Although a free app, the game allows players to spend real money to buy coins and other in-game objects to enhance their experience. The game has tapped into a groundswell of nostalgia for the Pokemon craze, which first emerged about 20 years ago among kids who are now in their twenties and thirties and have disposable income.
Nintendo shares more than doubled from about 14,000 yen to more than 31,000 on the Tokyo Stock Exchange as the game broke more and more records. In U.S. dollar terms, that means Nintendo has added more than $12 billion US in market value since the free game launched.
But that stock rise wasn't grounded in reality, as Nintendo doesn't in fact own the game in question. It owns just under a third of the Pokemon company, which is co-owned by two other privately held Japanese companies. The app itself was developed by tech company Niantic, a former subsidiary of Google that Nintendo owns a small stake in.
With so many owners, the game won't be a financial bonanza for Nintendo, the company said. "Because of this accounting scheme," Nintendo said, "the income reflected on the company's consolidated business results is limited."
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The 5,000-yen decline would likely have been larger, but the Tokyo Stock Exchange halted trading once that limit was hit because of a built-in circuit breaker designed to curb panic selling.
That suggests the stock could be in for another wallop when it resumes trading on Tuesday.
Although an iconic name in gaming, Nintendo has fallen to a distant third place in the console gaming space behind Microsoft and Sony, and had steadfastly refused to enter the mobile gaming space entirely until the launch of Pokemon Go.
The company has in the past been reluctant to allow its properties such as Super Mario Brothers and Donkey Kong to be used on other platforms such as Apple and Android devices.
Bayview Asset Management analyst Yasuo Sakuma says he remains bullish on the company's prospects even if Pokemon Go isn't quite the financial bonanza many predicted.
"Nintendo is well placed to boost its earnings with its other characters, such as Super Mario and Zelda, and their potential is unknown," he said.
"The market has overreacted to the Nintendo statement," said David Gibson, a senior analyst at Macquarie Securities Group. "I believe that Pokemon Go will be material in the company's earnings given the current trends for the game."
With files from Reuters