Nintendo Co., Ltd: This Is How to Profit from Pokémon Go

Nintendo CoPokémon Go Has Saved Nintendo

Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY), after years of disappointing results, has doubled its value in two weeks. The reason for this success, which has allowed Nintendo to surpass Sony, is the augmented reality (AR) “Pokémon Go” game.

The Pokémon Go app has transformed Nintendo itself since July 6, when the game was released as a mobile app for “iOS” and “Android” devices. Since then, Pokémon Go has become more than a global craze; it’s turned out to be an instant cultural phenomenon.

The game consists of searching for colorful creatures, known as Pokémon, in the streets of the player’s city in an AR setting.

The little monsters have allowed Nintendo to transform from a maker of consoles to occupying a solid spot in the battle for mobile app dominance. The success of the Pokémon Go game for Nintendo has been such that there appears to be no way to avoid talking about it. The Pokémon Go game has smashed every record in the roster of mobile apps. Ten million people downloaded the Pokémon Go app in just 10 days. By now, the number of users has likely more than doubled—or even tripled.

Pokémon Go More Popular Than Tinder

In the United States, the Pokémon Go game app beat “Tinder” in number of downloads. It seems people prefer playing Pokémon to looking for romance.

From 1996 onward, Pokémon has fascinated the masses, but few expected this kind of success with the app today. The app follows in the footsteps of such casual gaming app giants as “Candy Crush.” However, Nintendo’s strength has been less technological innovation than adapting existing technology to a new kind of playing format.

The application of augmented reality in the Pokémon Go game is a basic but entertaining one. This is important to draw in and retain users. The second aspect is monetizing the success. Users can download the Pokémon Go app free, but they need to pay for additional features in order to unlock certain characters and move to higher levels.

The problem is that few investors have understood the fact that Nintendo will not be getting the majority of those dollars. In fact, Google and Apple retain 30% of all in-app transaction revenue—the richest slice of the pie. Niantic, the company that developed the app, and The Pokémon Company, of which Nintendo owns some 30%, divide up the earnings. In the end, Nintendo can hope to get between 13% and 25%, according to estimates (basically a third of what The Pokémon Company gets).

Pokémon Go Spreads Worldwide

Recently, McDonald’s Corporation (NYSE:MCD) has also gotten involved, serving up some of its locations in Japan as Pokéstops.

As for Nintendo, in order to consolidate its earnings from Pokémon Go and move to the next level, it must take a bigger chunk out of the mobile gaming app business. The mobile app business simply has lower costs and massive scalability. The success of the Pokémon Go game, therefore, has not fully materialized yet.

For Nintendo, success will come if it can use Pokémon Go to develop similar apps/games. Indeed, new titles are said to be in the works.

Meanwhile, in the spring, Nintendo will focus on launching its new home console, the “NX.” Perhaps, the success of Pokémon Go will affect—in the sense of increasing—sales of its consoles. Nintendo plans to release the NX around the same time as the next batch of AR game apps.

Nintendo was the first to develop a Pokémon game back in 1995. The Pokémon Go game may be augmented, but the fun is real. In cities across the world, thousands—scratch that, millions of people of all ages walk sporting an air of concentration as they stare at the screen of their smartphones, waiting for the next wild Pokémon to pop up. Sometimes, they are alone; sometimes, they are in groups; and sometimes, as has happened in Central Park in New York on the evening of July 15, there were so many that they blocked traffic!

Such is the success of the Pokémon Go game—and such is the potential for Nintendo stock moving forward.