Deutsche Bank Says Nintendo's Pokémon Go-Inspired Surge Has Run Its Course

More evidence needed to justify this rally.

Pokémon Fever Makes Market History

According to financial markets, Nintendo Co. Ltd. might be more of a mobile gaming company than a seller of gaming consoles. And that's a sign the Pokémon Go-fueled rally in the stock might have gone too far, according to Deutsche Bank AG.

Since the launch of its viral, battery-draining hit augmented reality game in the U.S. earlier this month, shares of Nintendo have gone parabolic.

7974 JT Equity (Nintendo Co Ltd) 2016-07-18 10-14-15
Source: Bloomberg

"Pokémon Go is a genuine phenomenon − just after little over a week, it has added US$19 billion to the value of Nintendo," writes Deutsche Bank analyst Han Joon Kim. "The market is now valuing Nintendo at US$27 billion in market capitalization (ex-cash & treasury shares at book value), on a par with global leaders such as Electronic Arts Inc. and Activision Blizzard Inc. that respectively have 5 percent global video game market share versus Nintendo’s current 2 percent."

As such, amid this frenzy, the stock price now reflects operating and financial performance that will be difficult to realize, he argued.

"We need to see further hard evidence to model in significant further upside," writes Kim, adding that the launch of Pokémon Go in other regions, introduction of new mobile games, and the reception to its new NX console were key events to watch in this regard.

The analyst cut his rating on Nintendo to "hold" from "buy" and upped his price target to 30,000 yen from 23,600 yen.

"We think the stock price now prices in a large portion of the market share recovery story, which we believe is readily achievable from leveraging its intellectual property to some degree," he explains. "Combined with mobile game launches and market share recovery in console via NX, we are willing to model in a market share recovery by FY3/2019 to ~5 percent, but not towards the 10 percent level that Nintendo enjoyed in 2009 when Wii revolutionized the game industry."

However, Kim acknowledge that better-than-anticipated monetization of Pokémon Go constituted one of the key upside risks to his call on the stock.

Before it's here, it's on the Bloomberg Terminal.