Why is Nintendo stock plunging? Nintendo didn't make Pok茅mon Go.
The Pok茅mon Go craze may be fading for investors. Nintendo stocks fell 18 percent on Monday -- the largest daily drop allowed on Tokyo's stock exchange and the most Nintendo shares have fallen since 1990.
After a Friday spent launching the augmented reality game in Nintendo鈥檚 home country of Japan, Nintendo executives informed investors that Nintendo would not be expecting major profits from Pok茅mon Go, even after weeks of huge success in the United States.聽
Pok茅mon Go encourages users to search for Pok茅mon characters projected into the user鈥檚 environment when looking through a smartphone screen. Within two weeks of the app鈥檚 US release on July 7th, Nintendo stocks had surged 120 percent, adding $23 billion to Nintendo鈥檚 overall value.
However, profits from Pok茅mon Go don鈥檛 return solely to Nintendo. The app is the result of a collaboration between the Pok茅mon Company, Nintendo, and Niantic, an American software development company that developed the augmented reality technology for the game. Although Nintendo has a stake in both the Pok茅mon Company and Niantic, it owns neither outright.
Nintendo owns only 32 percent of the Pok茅mon Company, which regulates the purchasing and licensing of all things Pok茅mon. Both Nintendo and Pok茅mon have undisclosed stakes in Niantic, along with Google. Nintendo has an 鈥渆ffective economic stake鈥� of 13 percent in the Pok茅mon Go app, David Gibson, a senior analyst at聽Macquarie Securities, .
Additionally, the public鈥檚 interest in the app is cooling after a red hot few weeks following its release. , downloads of the Pok茅mon Go app in the United States were the highest on the day of its release. The number of daily users of the app peaked July 14th, about a week after its release. Google searches regarding the app topped off around the same time.
The app鈥檚 almost overnight success and status as a cultural phenomenon has likely contributed to its recent downhill movement. Christopher Geroux, , 鈥淭hat degree of instantaneous growth is unprecedented and it's likely the trend can only go down from here.鈥�
Other record-setting gaming apps experienced much slower growth than Pok茅mon Go. For Candy Crush Saga and Angry Birds, for instance, it took months for the games to grow their user base and hit their daily download peaks.
Nintendo, which will report its first quarter earnings this Wednesday, can still expect to profit from user-enhancing features for the Pok茅mon Go game. The creation of paid add-ons for freely downloaded apps is a common way for tech companies to make a profit on their creations. Nintendo also plans to release Pok茅mon Go Plus, a wearable piece of hardware that will allow users to catch Pok茅mon characters without taking out their phone.
Even with the huge boost in interest in Pok茅mon, and the possibility of profit from future creations, Nintendo executives do not plan to upgrade their annual forecast for the financial year as they have already included future profits from the Pok茅mon Go Plus into that forecast.
Despite the recent drop, Nintendo鈥檚 shares are still up 60 percent since the launch of Pok茅mon Go in the United States. Gibson , "The market has overreacted to the Nintendo statement. I believe that Pok茅mon GO will be material in the company's earnings given the current trends for the game."
Though interest in the game is leveling off in the United States, the launch of Pok茅mon Go has revived the Nintendo brand name and made the company a player in the businesses of both augmented reality and mobile apps.
