Nintendo investors who thought they would score big returns after this summer's successful launch of Pokémon Go found that actual profits were more elusive than the colorful characters.
Nintendo last week made it painfully clear that The Pokémon Co. and Niantic -- the developer of the popular mobile app that takes players off the couch and into the real world -- were far better positioned than it was to reap financial rewards.
Niantic, which is a spin-off of Google parent Alphabet, now has a net worth around US$3.65 billion, and is estimated to generate more than a million dollars a day from the game, according to Citibank analysts.
Much of that revenue potential lies in a wealth of in-app purchases designed to heighten excitement for Pokémon Go gamers.
"Pokémon Go has so far generated $120.3 million since launch," said Joost van Dreunen, principal analyst at SuperData Research.
"Unfortunately for Nintendo, this won't move the needle much," he told the E-Commerce Times. "Nintendo's stock price shooting up [following the launch] was in part an overdue market correction, and the Pokémon Go craze merely inflated the numbers."
Given Pokémon Go's revenue potential, it would seem that Nintendo, which long has developed Pokémon-themed video games, should be reaping the rewards -- and passing them on to its investors. However, it's far more complicated than that.
"Niantic and The Pokémon Co. are the driving force behind this game, not Nintendo" said Lewis Ward, research gaming director at IDC.
"Investors didn't do the basic due diligence to see where Nintendo stood in the supply chain -- and in fact, it was a junior partner," he told the E-Commerce Times.
Nintendo currently has just a one-third stake in The Pokémon Co., which in turn controls what happens around Pokémon, including plush toys, action figures and card games.
"Where it may have gotten confusing is that on past handheld versions, such as on the Nintendo DS, Nintendo was the developer and investors may have thought that was what was going on this time around," Ward suggested. "Only about 10 percent of the revenue actually reaches Nintendo. The rest goes to Apple [and] Google and is then split between Niantic and the Pokémon Co."
With so many hands out, it should be no surprise that Nintendo's cut from Pokémon Go is smaller than expected. Even the valuation of Niantic might be optimistic, given that the developer has just this one app -- which may or may not sustain its popularity as cooler weather sets in and younger players head back to school.
"This $3 billion valuation of Niantic is just plain wrong. That puts it at roughly a third of the valuation of Supercell, which Tencent recently acquired for $8.9 billion," said Super Data Research's van Dreunen.
"Supercell has had not one but four top-10 mobile games in the last few years, and generates $150-$200 million a month off its titles," he observed.
Even Nintendo's response to the game's success has been unexpected.
"Frankly speaking, Nintendo already sits on a mountain of money, and this sudden craze around Pokémon is great for headlines, but Nintendo has never acted on a whim," van Dreunen maintained. "You'd expect any other firm to jump on top of this, but instead Nintendo has now also delayed the Pokémon Go Plus, and that might in fact just be the right strategy for them."
Pokémon Go Plus, which Nintendo plans to launch next month, represents just one possible profit generator related to the game's release.
"Nintendo will capitalize on Pokemon's popularity in a number of ways," predicted Steve Bailey, senior analyst for games at IHS Technology.
In addition to the release of the Pokémon Go Plus, "there's the knock-on effect on the whole of the franchise itself, which has strong association with Nintendo platforms -- hence explaining the market's perception that Pokémon Go was a game wholly created and owned by Nintendo," he told the E-Commerce Times.
"The Pokémon Go [Plus] will also retail for around $35," noted IDC's Ward. "That will be a bit of money, even if only a few Pokémon Go players want it, but this is Nintendo's kettle of fish and they own everything associated with it."
In the longer term, suggested Bailey, "Nintendo will no doubt see some benefit from the growing operations of both Niantic and The Pokémon Co., but the format this will take isn't clear."