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Apple, Alphabet and others will profit from Pokémon Go

Apple, Alphabet and others will profit from Pokémon Go
July 22, 2016
Apple, Alphabet and others will profit from Pokémon Go

The Pokémon franchise revolves around catching and battling cuddly monsters, but the latest iteration adds a twist: it uses Google Maps to let players walk around a virtual version of their neighborhood. It also uses augmented reality technology and their device's camera to overlay the eponymous creatures onto the real world. The game has already been rolled out in more than 30 countries and just launched in Japan, the home of Pokémon.

The game was created by The Pokémon Company and Niantic, a specialist in augmented reality and digital mapping. Nintendo (JP: 7974) owns stakes in both businesses. Niantic was spun out from Google in 2015; Nintendo, The Pokémon Company and Google all invested in the business.

Both Apple and Google take around a 30 per cent cut of all purchases made via their app stores. More than 21 million of Pokémon Go's players use Apple iPhones, and they are reportedly spending an average of $1.6m a day on items that attract Pokémon and speed up levelling. Needham points out that Candy Crush - one of the most successful mobile games - posted more than $1bn in sales in both 2013 and 2014, and estimates that about 10 times as many of Pokémon Go's players are spending real money.

Of course, Pokémon Go hype will die down in time. Players are already growing bored and frustrated with the game, as the servers frequently crash, bugs and glitches linger, there's minimal storyline and it becomes extremely difficult and time-consuming to progress after a certain point. Although Pokémon Go continues to launch in new territories, we think Needham's forecast of a $6bn windfall for Apple looks too lofty. Even if the game made $10m a day for the next two years, the company would only net $2.18bn - less than 1 per cent of the $234bn in turnover it generated last financial year.

After investors more than doubled Nintendo's valuation in less than two weeks, we highlighted that although it holds stakes in both of the game's creators, it's unlikely to profit significantly. Indeed, the company's directors recently said they don't plan to raise earnings forecasts, suggesting they don't expect the game to have a material effect on profits.

Other companies that stand to benefit haven't seen quite the same fervor for their shares. The boss of GameStop (US:GME) - the US equivalent of Game Digital - revealed that sales have doubled in some stores due to soaring sales of Pokémon merchandise, as well as related events that have drawn players inside. The news has sent its shares up more than a tenth, while Game Digital's shares have advanced 6 per cent over the same period. However, the downside for the video game retailers could be lower demand for gaming consoles and other video games.

Meanwhile, Pokémon television series and films have become some of the most popular shows on online video-streaming service Netflix following the new game's release. McDonald's has also struck a deal with the game's creators to designate 3,000 of its Japanese stores as 'gyms' - locations that players can claim by defeating others' Pokémon. The hope is that players will grab a burger and a shake in between battles. Shops, restaurants and other businesses will be lining up to become Pokémon Go partners and cash in on the game's success.