Augmented reality mobile game Pokemon GO has taken the world by storm since its launch on July 6. The game already has more than 21 million active users in the U.S. alone. Has the huge hit created buying opportunities for the stocks of Nintendo Co., Ltd (ADR) (OTCMKTS: NTDOY), mobile carrier Verizon Communications Inc. (NYSE: VZ) and/or app store owner Apple Inc. (NASDAQ: AAPL)? Here’s a closer look.
Pokemon GO has certainly created a trading opportunity when it comes to Nintendo. Incredibly, the stock has doubled since the beginning of July, adding more than $21 billion to its market cap. Unfortunately, the game’s hype and the huge move in share price could be setting the stock up for major downside.
Morgan Stanley analyst Mia Nagasaka estimates that the game will need to generate a minimum of 15 billion to 20 billion yen per month for an extended period for it to have a “meaningful” impact on Nintendo’s earnings.
If the game maintains its top position in both the App Store and Google Play, that could mean $200 million in sales per year for Nintendo. However, it’s likely that the game will never be more popular than it is right now. It’s still unclear how much staying power it will have.
The easy money trading Nintendo’s stock has already been made. Once other buyers begin taking profits and the game’s popularity begins to inevitably slip, the downside in the stock could be significant.
Outside of the direct Nintendo play, traders might be wondering if Pokemon GO will be a significant boost to wireless carriers’ bottom lines. The nature of the game has players roaming around using data in areas outside of the reach of wifi.
There are conflicting views on just how much data Pokemon GO users are burning through. T-Mobile US Inc (NASDAQ: TMUS) CEO John Legere tweeted on July 12 that subscriber data usage had quadrupled since the launch of the game. However, Verizon spokesperson Chuck Hamby contradicted Legere, telling the Wall Street Journal that Pokemon GO traffic represented less than 1% of the carrier’s total data and that “nobody is necessarily busting their bundle.”
P3 Communications Inc. estimates that Pokemon GO consumes 5-10 MB of data per hour, roughly 1.4-2.8% as much as watching streaming HD video. These numbers seem to suggest that Pokemon GO will do very little to move the providers’ share prices.
One of the reasons why Nintendo stock’s big move is surprising is because analysts estimate that Nintendo will only receive about a 20% share of Pokemon GO’s app store revenue. App store owners like Apple and Alphabet Inc (NASDAQ: GOOGL), on the other hand, get roughly a 30% cut on in-app purchases.
While more early Pokemon GO players are playing on Android devices than iOS devices, iPhone users have historically been more likely to make in-app purchases.
But even if 100% of Pokemon GO’s in-app purchases happened on iPhones, Nagasaka’s estimates suggest Apple would only generate roughly $300 million in annual sales if the game maintains its current popularity. That may be a big number for Nintendo, but Apple recorded $231.28 billion in sales in 2015. One mobile game is not going to move Apple’s needle, no matter how successful.
Pokemon GO was a huge trading opportunity for early buyers of Nintendo stock, but it will likely not make a meaningful impact on the stocks of Verizon or Apple. The easy money has already been made with Nintendo, and the most likely trading opportunity from this point forward is to the downside based on the market’s exceedingly high expectations.
Disclosure: the author holds no position in the stocks mentioned.
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