Nintendo Shares Fall After Statement That Pokemon Go’s Impact On Earnings Is Limited

Pokemon Go was a booster shot for Nintendo. The company’s shares climbed to heights they hadn’t seen since the days of the first Wii. Nintendo’s total market cap doubled and peaked at $42.5 billion. But it had to end. Soon after, the company’s shares fell 12%. But then Nintendo announced that it only owned 32% of Pokemon Go. Shares again fell by 18% according to Bloomberg, the maximum allowed and that’s when the magic had come to an end. Even Japan’s record breaking 10 million downloads in one day couldn’t salvage the situation.-1x-1

This is what is known as a classic over reaction in the stock market. At least, that’s what analysts are saying. Nintendo’s shares plummeted the most since 1990. Apparently investors didn’t know that Pokemon Go wasn’t totally owned by Nintendo or that they didn’t make the app. That’s understandable since Nintendo had released most of the Pokemon video games in memory. Niantic is also a relative unknown in the video game industry so it’s probable that not many people had thought of it as the maker of the game.nintendo

Businesses profiting from the game were also hit. McDonald’s Holdings Co. (Japan) which was Pokemon Go’s launch partner in the country declined by 12%. Hosiden Corp., which is rumoured by Mitsubishi UFJ Financial Group Inc. to be manufacturing Pokemon Go Plus (a watch accessory to play the game) sank 16%.

The way Nintendo broke the news to investors was by saying that since it owned only 32% of Pokemon Go, the impact on its earnings would be minimal. The result was a $6.7 billion loss for the company on Monday. Apparently the revelation of misinformation is the antidote to investor confidence. For those of you wondering how much Nintendo actually owns, one estimate by Macquarie Securities analyst David Gibson is 13%.

Nintendo could’ve played its cards better though. Downplaying the success of something so huge is bound to get people down. It’s like telling someone that Santa Claus isn’t real after they got their Christmas presents.

Nevertheless, Nintendo’s profits are predicted to be up from 16.5 billion Yen to 35 billion Yen this year. And Pokemon Go hasn’t even been released in China yet, not to mention India. These two countries are home to the two biggest populations in the world and their urban centers are just waiting to sink their teeth in to Pokemon Go. The game is also not yet available in Indonesia, Brazil or Pakistan, the fourth through sixth most populous countries.

Nintendo’s Shift To Mobile Gaming

Cosplayer dressed as a character of the augmented reality mobile game "Pokemon Go" by Nintendo participate in a "poketour" organized by the municipality in San Salvador, El Salvador July 23, 2016. REUTERS/Jose Cabezas
Cosplayer dressed as a character of the augmented reality mobile game “Pokemon Go” by Nintendo participate in a “poketour” organized by the municipality in San Salvador, El Salvador July 23, 2016. REUTERS/Jose Cabezas

Of course Nintendo’s fortunes are beginning to look up in the long run. Due to the success of Pokemon Go, the company is looking to bring more of its classic stars to mobile gaming. The company has long resisted the transition to mobile gaming but Pokemon Go’s unprecedented success knocked some sense in to them.

The first titles to come out will be Animal Crossing and Fire Emblem. These will potentially be followed by a Super Mario game (or series of games) as well as a whole series of Zelda titles.