“Pokémon Go” is an overnight success the likes of which has never been seen before. Not only is the augmented reality app already bigger than both Tinder and Twitter, but people also spend more time playing it than they do browsing Facebook.
The game’s incredible overnight popularity has been a boon Nintendo, which doubled its market value to $42.5 billion since “Pokémon Go” launched on July 6. To say people are excited about Nintendo’s prospects would be an understatement. They are absolutely salivating.
Benefits remain unclear
But prospective investors might want to pump the brakes on all of their newfound love for the house that Mario built, because according to one brokerage firm, the benefits of “Pokémon Go” for Nintendo remain “unclear.”
According to CLSA analyst Jay Defibaugh, “Nintendo receives royalties for Pokémon titles but surprisingly little direct profit, benefitting instead from the impact of Pokémon titles on hardware sales and penetration.”
Developer Niantic created “Pokémon Go” in partnership with the Pokémon Company. As Deutsche Bank’s Han Joon Kim explains, Nintendo does own 32% of the Pokémon Company, which is also owned by Game Freak and Creatures. Creatures is also partially owned by Nintendo. In other words, Nintendo will likely see some improvements to its bottom line, but it’s unlikely to be as dramatic as it has been made out to be.
Pokemon is one of a kind
More importantly, however, is the fact that “Pokémon Go” isn’t the first of a series of major mobile releases being pushed out by Nintendo. It’s actually more of an anomaly than anything. Nintendo does have two mobile game releases on the way from its “Animal Crossing” and “Fire Emblem” franchises, but they’re unlikely to have the same kind of major crossover appeal as “Pokémon.” What’s more, there are no assurances that “Pokémon Go” won’t flame out in a few short months.
Nintendo has been adamant about keeping its big-name franchises including Super Mario Bros., The Legend of Zelda and Mario Kart off of smartphones. Instead, the company would rather focus on selling its top-tier titles on its own handheld gaming consoles like the Nintendo 3DS or its Wii U home console.
The problem with that is that sales of the 3DS have already begun flagging and the Wii U has been a failure unable to match the kinds of sales seen by Sony’s PlayStation 4 or Microsoft’s Xbox One.
What’s more, Nintendo has yet to announce a successor to the 3DS and hasn’t even provided a price or even a look at the design of its next-generation NX console, which is expected to launch next year.
Sure, there are still two Pokémon games slated for release on the 3DS this year, which is sure to drive sales of the handheld, and the previews for “The Legend of Zelda: Breath of the Wild” for the NX have been largely positive. But whether those can sustain the company in the long term remains to be seen.
If Nintendo wants to keep the positive momentum it’s seen with “Pokémon Go” it needs to strongly reconsider whether it is willing to bring its big-name franchises to smartphones. If not, the company’s future rests on whether the upcoming NX can win back supporters who were burned by the Wii U.