Nintendo Co. shares rose 12.7% in Tokyo trading on Tuesday following a 25% surge on Monday, pushing the videogame maker’s market capitalization above $30 billion.
The sudden change in Nintendo’s fortunes rests on investors’ anticipation for profits from “Pokémon Go”, an application for smartphones in which players look for animated characters superimposed on real-life images on their phone screens. The app is free to download, and the revenue comes from purchases that players can make within the app, such as incense to lure the Pokémon creatures.
What isn’t clear is how much of that revenue will flow to Nintendo’s bottom line.
The game is developed and distributed by Niantic Inc., an unlisted company in California that was spun out from Alphabet Inc.’s Google last year. Niantic said in October 2015 that it had raised $20 million from Tokyo-based Pokémon Co., Google and Nintendo, with an additional $10 million investment possible if it achieved certain milestones. As is typical with startups, Niantic didn’t disclose the precise ownership stakes held by its investors.
Nintendo may profit as a part-owner of Niantic, and Nintendo is also a 32% owner of Pokémon Co., which has long controlled the merchandising of Pokémon characters and describes itself as the producer of the “Pokémon Go” game. In addition Nintendo itself plans to sell a $35 hand-held device called Pokémon Go Plus that would make it easier to catch the digital creatures in the game.
Finally, there is an indirect benefit for Nintendo: It is beginning to roll out smartphone games featuring Nintendo-owned franchises such as “Animal Crossing” and “Fire Emblem.” The experience with “Pokémon Go” has likely given Nintendo hints for making its wholly owned smartphone games a bigger success.
Adding all that up, the stock market has judged that Nintendo today is worth about $12 billion more than it was a week ago.
Still, the uncertainty surrounding the money flows has left Tokyo-based securities analysts struggling to come up with models for Nintendo’s future earnings.
“All we can do now is make a guesstimate because they don’t offer any information whatsoever, even a slight hint about it,” saidHideki Yasuda, an analyst at Ace Research Institute in Tokyo.
J.P. Morgan analyst Haruka Mori said she assumed Niantic and Pokémon Co. would split the game revenue, excluding the portion due to Apple Inc. or Google, which operate the app stores from which the game is downloaded. She said that if the app had monthly revenue of ¥30 billion, Nintendo’s annual income would likely rise by ¥25 billion. The Pokémon Go Plus device to be sold as an add-on could raise profits by a roughly similar amount if 50 million units are sold, she said.
Those are big gains considering that Nintendo’s net profit was only ¥16.5 billion in the year ended March 2016. Nintendo estimated that it would earn ¥35 billion in the year ending March 2017, a forecast issued before the recent craze.
Morgan Stanley MUFG Securities analyst Mia Nagasaka cautioned that to make a meaningful boost to Nintendo’s bottom line, the game would have to maintain its booming popularity, with millions of users paying sizable sums each month on game add-ons.
Analysts say the best might be yet to come for “Pokémon Go” because it is still not available in Japan, one of the biggest smartphone game market by revenue and the home to the 20-year-old Pokémon franchise.