Nintendo's latest stock rocket.

Photographer: YOSHIKAZU TSUNO/AFP/Getty Images

Buckle Up for Nintendo's Pokemon Roller Coaster Ride

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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If nothing else, the spectacular popularity of the new smartphone game, Pokemon Go, has given us a really fun stock chart:

As has been pointed out again and again, Japanese video-game maker Nintendo doesn't actually own Pokemon Go. It owns a stake -- it's unclear how big -- in Niantic, the Google spinoff that developed the game. Nintendo also owns 32 percent of the Pokemon Co., which controls the merchandising of the Pokemon characters. It's planning to sell a Pokemon Go device. It has demonstrated that maybe it can figure out how to make money from games played on smartphones.

Is all that enough to justify a more than $14 billion increase in market capitalization over the past week (to $37.2 billion from $22.9 billion)?  (Just for comparison, Supercell -- which has definitely figured out how to make money from games played on smartphones -- was valued at $10.2 billion when Chinese internet giant Tencent bought it last month.) Nintendo's history offers some possible answers. Here's the company's stock performance over the past five years.

On March 17, 2015, Nintendo announced that it would team up with DeNA, which runs a mobile gaming platform in Japan, to develop games for smartphones. Up to then, the company had insisted on only developing games for its own devices. From the Bloomberg News story that day:

“Finally Nintendo has turned a corner and embraced a huge strategic shift,” Atul Goyal, an analyst at Jefferies Group LLC in Singapore, said in a report as he raised his recommendation on the stock to buy. “We have been waiting for Nintendo to make this move and this will offer large upside.”

Enthusiasm about the shift sent the stock price up 36 percent in two days. It rose some more in subsequent months, then fell back down to a level modestly higher than where it started out that March 17, and bounced around there until Pokemon Go was released last week.

This trajectory -- great excitement about a new product or strategy, subsequent disappointment and modest overall appreciation -- has become a familiar one for Nintendo. The company started out in 1889 making playing cards, then branched into arcade games in the 1960s and home video games in the 1970s. It's been publicly traded since 1962; the data available on the Bloomberg goes back to 1983:

The investor excitement around Wii, the motion-controlled gaming system that Nintendo began touting in 2005 and released on Nov. 19, 2006, far surpassed what's happened so far with Pokemon Go. For good reason: Nintendo sold 102 million Wii consoles and 914 million Wii games, and its profits almost tripled from 2006 through 2009. Then the market got saturated, the follow-up Wii U -- released in 2012 -- was a relative bust, and the center of global gaming gravity shifted to smartphones. The rise and maturation of 1989's Game Boy, another category-defining Nintendo device, appears to have occasioned a similar stock boom and bust.

That's sort of the way the gaming business goes. Sometimes you have a hit, sometimes you don't. Nintendo now has a huge hit -- although, as already noted, "has" is something of an exaggeration. That's surely worth something. Almost as surely, investors will overestimate how much it's worth.

  1. Yes, I know Nintendo also unveiled the retro NES Mini console this week. I'm guessing that wasn't a major cause of the stock gains.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Susan Warren at susanwarren@bloomberg.net