Pokémon GO Earnings Warning: Why Nintendo Shares Are Down After Success Of Popular Game

While people all over the world continue to search for Pikachus and end up in precarious situations while playing the popular augmented reality game Pokémon Go, shares in Nintendo Co. were down 18 percent Monday after the company warned that the smartphone game would create a limited impact on its earnings.

Nintendo’s share price had doubled since the game that involves using GPS to catch different characters was released in the U.S. and other major markets earlier this month to immediate fanfare. The popularity of the game helped drive massive buying of Nintendo shares in recent weeks.

Why did Nintendo issue the warning ahead of earnings report? Pokémon GO was developed and distributed by Niantic in which Nintendo owns a 32 percent stake, CNNMoney reported. The 32 percent share means smaller profits than some investors might have expected amid the soaring popularity of the game. The Pokémon Company owns an undisclosed sum of privately held Niantic and also controls merchandising and licensing for Pokémon. Nintendo also owns 32 percent of the Pokémon Company.

The popular game marks Nintendo’s first attempt at mobile gaming. With its launch in Japan last week and Hong Kong Monday, some analysts said the market reaction to the statement from Nintendo was overly harsh, especially with the possibility for future games, spin-offs and other merchandise possibilities. Sales from other features — including Pokémon GO Plus, which sends alerts to players about Pokémon in their vicinity — could produce a future bump.

“The market has overreacted to the Nintendo statement,” David Gibson, a senior analyst at Macquarie Securities Group, told Reuters. “I believe that Pokémon GO will be material in the company’s earnings given the current trends for the game.”

New features such as trading are set to debut to help players catch all 151 Pokémon, Niantic’s CEO John Hanke said over the weekend at the San Diego Comic-Con, Wired reported.

Monday’s decline was the biggest for Nintendo since October 1990 when shares fell by 17.7 percent, Reuters reported. Nintendo is scheduled to report its earnings Wednesday for the April-June period. The game was released after this period.