Pokemon Go Financial Impact Will Be Limited, Says Nintendo; Stock Crashes

Shares of Nintendo Co. slumped the most since 1990 after the company said on Friday that the financial impact of the worldwide hit Pokemon Go will be limited.

stock slumped 18 percent to JPY 23 220 at the close in Tokyo Monday, the maximum one-day move allowed by the exchange, wiping JPY 708 billion ($ 6.7 billion or about Rs. 45,096 crores) market value. After debuting in the US earlier this month, Pokemon Go was launched in Japan on Friday and be available in Hong Kong on Monday.

Correction occurs after the release of Pokemon Go almost double the Nintendo stock through Friday's close, adding $ 17600000000 (about Rs. 1,18,468 crores) in market capitalization. Nintendo is a shareholder in Niantic game developers and Pokemon Co. Inc., but it has "an effective economic stake" of just 13 per cent on the application, according to estimates by Macquarie Securities analyst David Gibson.

"It's still possible to say that in the short term it was too hot," said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co.

In a press release after the market closed on Friday in Japan, the Kyoto-based company said the financial impact of the game will be "limited" and that it is not necessary to revise the annual forecasts even after factoring in current conditions. He also said revenue from Pokemon Go Plus, Nintendo accessories produced for the game is expected to go on sale soon, already factored into the current guidance.

"The contents of the announcement itself is not much of a surprise, but a surprise they said it on Friday instead when they report earnings" this weekend, said Nobuyuki Fujimoto, a senior market analyst at SBI Securities Co. "The games have been published in Japan, so for the moment currently we have exhausted all of the catalyst. "

The company will report first-quarter earnings on Wednesday after the market close, a period which ended before the release of Pokemon Go. The firm is forecasting an annual net profit of JPY 35 billion in the current fiscal year, up from the JPY 16.5 billion it earned last year.

Short interest in Nintendo surged earlier this month as bears bet the stock rally had gone too far. As of July 20, short-sellers had built up a bet worth $940 million (roughly Rs. 6,326 crores) - or 2.6 percent of outstanding shares - that the stock would fall, according to researcher IHS Markit. At current prices, such a bet would have generated about $140 million (roughly Rs. 942 crores) in profits.

Besides the earnings announcement on Wednesday, Morgan Stanley said the next focus point is if Pokemon Go launches in China, where access to geographical data necessary for the game is restricted by the government. Investors are also waiting for announcements on Nintendo's other upcoming mobile games and its next-generation console expected to be released next year, analysts Mia Nagasaka and Yuki Maeda wrote in a July 22 report.