Story Of The Week

Pikachu! You fuelled the success of Nintendo

Yes, you read that right. Pikachu is the little monster that set Nintendo’s shares soaring!

Thanks to the success of Pokémon Go, Nintendo’s shares have far outperformed other game developers, making Nintendo’s stock the best performer globally in the gaming industry. The stock is up by 56 per cent since the release of the game, and no other gaming company comes close.

Overview

Nintendo Company Limited partnered with the US-based developer Niantic and The Pokémon Company to launch its first augmented reality mobile-gaming hit on 6 July 2016. Pokémon Go players walk around their streets in real life, search out and capture Pokémon cartoon characters on their smartphones.

The game has become a global phenomenon since its release. It was ranked 1st on the app store download chart on iPhone’s App Store and Google Play just few days after its initial release in the US, Australia and New Zealand.

                  pic 1 final

Although the app itself is free, players buy virtual items to strengthen their Pokémon. The “freemium” model has shown great success in the past for many publishers and Niantic wants retailers and other firms to sponsor locations in its virtual world.

A Nintendo spokesman, when asked about the company’s mobile strategy, said that there were three main objectives, “To maximize exposure of Nintendo’s intellectual properties to consumers, to make profits on mobile devices, and to create synergies with the console business.”

The phenomenal impact on the stock charts

Shares in the company have seen a sharp rise since the release of the game, gaining more than 50 per cent. Nintendo’s shares closed 16 per cent higher on 21 July, putting the company’s market value at 3.6 trillion yen (US$34 billion).

For some analysts and investors, the launch of Pokémon Go hints at the unlimited potential of the firm’s mobile games business. It is expected that Nintendo would release two more mobile games soon, “Animal Crossing” and “Fire Emblem,”. Jefferies analyst Atul Goyal said, “I’ve held the belief that Nintendo’s [intellectual property] value is huge.”

For FY2017, Nintendo is projecting sales of ¥500 billion, or around US$4.7 billion. Given its current market capitalization of about US$40 billion, it amounts to around 8.6 times next year’s revenue. At that same revenue projection against its market capitalization prior to Pokémon Go, it would only be trading at something around 4 times next year’s revenue. Isn’t that fascinating? Now, let us look at the numbers of Sony, one of the largest publishers in the industry.

The company has a market capitalisation of US$38.5 billion and a projected next fiscal year’s revenue of US$7.3 billion (nearly 5.3 times next year’s revenue).

               pic 2 final

Nintendo is being valued way ahead of Sony, its closest comparable. If we look at King.com’s performance which was valued at US$4.4 billion in August 2014 (a little less than twice of next year’s revenue), and gave a little leeway that the company’s major share of its revenue came from Candy Crush Saga, we can infer that Pokémon Go would be contributing a meaningful amount of revenue to what could be Nintendo’s revenue in the next year.

The stock charts indicate there is a lot of stifled demand that Nintendo can unlock as a whole new stream of revenue that could come from smartphones. If its hardware business starts sagging, say from cannibalization, it can point investors to its strong software revenue and keep them content.

Why Pokémon Go may be a good thing for society

While the game may have real-world issues, it also has immense benefits. Across social media, Pokémon Go players have begun sharing stories of bonding with strangers while playing. The game is a great way to get more involved with the neighbourhood and meet people who otherwise would totally pass by. Further, since the game’s release, users have been posting pictures of their step-counting apps to find out how the game has enhanced their physical activity.

According to the Entertainment Software Association, a majority of frequent gamers find that gaming consoles hold more value for money than movies and music. Thus, augmented reality through a smartphone offers something of a fresh perspective to the ordinarily sedentary gamer. It lets an individual catch, train and battle with virtual creatures superimposed on the real world. Even if one accounts for all the risks it brings with itself, the game has a charm to it and has a long way to go! Within the human brain is the reward system which is responsible for desire and positive reinforcement.

Meanwhile, the game to monetize Pokémon Go is already emerging in the parallel. Nintendo has not even concluded its international rollout and, yet still it has been enough to significantly steer the market.

References:

http://www.bbc.com/news/business-36791275

http://uk.reuters.com/article/uk-nintendo-Pokémon-idUKKCN0ZX0ZC

http://blogs.wsj.com/briefly/2016/07/14/5-things-to-know-about-the-meteoric-rise-of-nintendos-share-price/

http://www.bloomberg.com/news/articles/2016-07-11/nintendo-adds-7-billion-as-Pokémon-go-marks-surprise-hit-chart

https://techcrunch.com/2016/07/20/what-the-Pokémon-go-hype-train-means-for-nintendos-value/

http://www.livemint.com/Opinion/5SS9lLhN5eEPVWeaLkAV0L/The-augmented-reality-of-Pokmon-Go.html

 

Advertisements

Categories: Story Of The Week

1 reply »