Nintendo shares slump before Tokyo regulators step in to stop decline
Nintendo has released a statement in which the company outlined the limited impact Pokémon Go will have on its annual revenues. Following the news, around $6.7 billion was wiped from the company’s market capitalization.
While Pokémon Go has proved to be one of the most successful product launches in recent years, as its release broke numerous records in markets around the world. EE stated it saw 350,000 downloads in the UK even before the app was officially released as users found another means to download it, such as accessing the US app store via a VPN. The success of the app is not under question, though Nintendo has not altered its annual revenue forecasts due to the limited role it has in the app itself.
“Taking the current situation into consideration, the Company is not modifying the consolidated financial forecast for now,” the statement read. “The Company will make a timely disclosure when the Company needs to modify its financial forecasts.”
Niantic Labs is an American company spun out of Google, who license the rights to the game from The Pokémon Company, who in fact own the Pokémon franchise. Nintendo itself owns roughly 32% of the voting rights to The Pokémon Company and therefore only entitled to a modest slice of the revenues from the game itself. Analysts at investment firm Macquarie Group estimate Nintendo will only be entitled to roughly 13% of the revenue generated by the Pokémon Go app.
Although many organizations would have done due diligence surrounding the game, the relationship between Niantic Labs, The Pokémon Company and Nintendo, as well as the potential for profit, it would appear the news caught certain individuals off-guard, as a substantial proportion was wiped off Nintendo’s market capitalization.
The announcement was made following the close of the markets on Friday, though this has led to a busy morning following the weekend. 18%, or $6.7 billion, was wiped off the market capitalization of Nintendo, though this could have potentially been worse, as regulations in the Tokyo market prevented a larger drop, as the maximum single day move allowed by the market is 18%. How much the shares would have shrunk if trading had continued will remain unknown, though Nintendo is still showing a net gain of 15% since the launch of Pokémon Go two weeks ago.
“The Pokémon Company is the Company’s affiliated company, accounted for by using the equity method. Because of this accounting scheme, the income reflected on the Company’s consolidated business results is limited.”
While this would appear to have come as a shock to certain investors in the Nintendo business, there is still potential for growth and long-term wins. In-app purchasing in the Japanese market will likely grow over future weeks, and the game has not been launched in two of the worlds other prominent app markets, Korea and China. There could be some big wins in these two markets, though it would be worth noting both have restrictions on the Google Maps product, potentially offering challenges for the way the app operates, and its overall success.
Should the app launch in China and/or Korea, the story is likely to roll on for some time, though how large the ripples will be following Nintendo’s revelation will likely be seen sooner. The success of the Pokémon Go is not under question, though Nintendo’s brief taste of fame following the surge in share price over the last two weeks would appear to be coming to an end.