Despite Pokémon Go Success, Nintendo Experiences Worst Drop In 26 Years

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Nintendo Co. posted the company’s worst drop in 26 years after they dismissed the notion that the explosive popularity of Pokémon Go would translate into steady profits, reports Bloomberg.

The Kyoto-based firm was valued at 109 times projected net income after Monday’s plunge but the company has already said it doesn’t expect Pokémon Go will yield enough profit to increase its earnings outlook for the fiscal year.

The company is only forecasting $333 million this year, with analysts projecting that the number will actually be about $285 million.

Nintendo’s biggest profit was in 2009 peaking at $2.65 billion when the Wii and DS game systems were both chart topping hits. Pokémon Go debuted after the latest quarter ended and won’t have a measurable impact on the results.

“The important thing for Nintendo is to develop and operate a game using its characters, by itself,” says Eiji Maeda, Analyst at SMBC Nikko Securities.

One reason why the benefits from Pokémon Go are hard to quantify is the lack of clarity over how revenue is shared between the game’s producers, Niantic Inc. Nintendo is an investor in Niantic and Pokémon, while Google also has a stake in Niantic, which used to be a part of the search giant.

Roughly 13% of Pokémon Go sales will go to Nintendo.

Nintendo’s other ventures

Nintendo will have other potential revenue streams such as Pokémon Go Plus, a clip-on accessory slated for release this week in Japan. The gadget alone could add as much as $78 million in profit this year.

There’s also the exclusive partnership that Nintendo forged with McDonald’s Holdings Co. (Japan), which has set up Pokémon Go checkpoints at its stores and is promoting meals with Pokémon toys. The companies have not disclosed any details regarding the partnership.

“The big takeaway from all this is that the group’s intellectual properties, in this case Pokemon, has global reach. Nintendo has other world-known characters such as Mario and Zelda — when they begin to appear on smartphones, we can expect a boost to earnings. From a long-term perspective, the current stock price isn’t necessarily expensive,” comments Tomoaki Kawasaki, Analyst at Iwai Cosmo Securities.

It seems like Nintendo will need a bit more time to see if Pokémon Go’s overnight explosion will generate long term revenue for the company, or amount to an overnight marketing fad.

A version of this appeared in Bloomberg on July 26. Read the full version here.