How Much Money is Nintendo Going to Make off of Pokemon Go?

We know the app is a smash hit, but there are other companies involved in the joint venture. Asif takes a look at exactly how much Nintendo could benefit financially from Pokémon Go.

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There is some confusion within the gaming community as well as the investing world regarding Pokemon Go's impact to Nintendo's bottom line. I have assembled the facts surrounding the deal with Niantic Labs and Nintendo's stake in the Pokemon Company.

In August of 2015, Niantic Labs was spun off from Google Inc. Google said in a statement at the time that Niantic Labs is “now ready to accelerate their growth by becoming an independent company" working with other entertainment companies. Niantic Labs announced on their official company blog just two months later that Nintendo, Google and the Pokemon Company had invested $20 Million (with an additional $10 Million of incentives) in a joint venture called Pokemon Go. Simple enough? Each company gets 33.33% of revenues and we call it a day. Not so fast! We have yet to take into account Nintendo's stake in the Pokemon Company.

The Pokemon Company has three equal investors: Nintendo, Gamefreak and Creatures. Each investing company has a 1/3 stake in the Pokemon Company. This means that 1/3 of the Pokemon Company's 33% of Pokemon Go revenue belongs to Nintendo. This leaves the revenue to be split 4 ways. Google will receive 33.33% of revenues, Gamefreak will receive 11.11%, Creatures will receive 11.11%, and Nintendo will receive 44.44% of revenues. Nintendo's share of revenue being comprised of their 1/3 interest in Pokemon Go joint venture with the additional 11% coming from their stake in the Pokemon Company. This means Nintendo gets 44.44% of the app's sales, right? Think again.

Google Play and Apple's App Store both charge a 30% fee for games sold on their stores. This means that the investors in Pokemon Go are splitting 70% of sales. We can finally get to the bottom of this caper by factoring in the fees from selling on Android and iOS. Google will receive 23.33% of App Store sales, but 53.33% (their stake in Pokemon Go plus the 30% fee from their store) of Google Play sales. Gamefreak and Creatures will each receive 7.77% of all sales. Nintendo will receive 31.11% of all sales. 

Nintendo receives the largest percentage (31.11%) of sales on the App Store than any of their partners, including Apple Inc.

Google receives the largest percentage (53.33%) of sales on their Google Play store with Nintendo still receiving the same 31.11% of sales on that marketplace.

Mia Nagasaka, an equity analyst with Morgan Stanley MUFG Securities, suggested earlier this week that Pokemon Go could generate almost $1 Billion of sales annually if it stays atop both the App Store and Google Play. Nintendo would pocket $311 Million in sales if Nagasaka is correct in her assumption. That would be an amazing return on their nearly $10 Million investment in the Pokemon Go joint venture.

Many people are baffled at how Nintendo's stock seems to be pricing in way more than just this bump in sales. Keep in mind, markets are about perception. Even though Nintendo only receives 31.11% of revenues from the app, the perception on the stock market is that their stock is the one to own to invest in this phenomenon. Nintendo has gained billions of dollars in market capitalization over the last week, and much of that has to do with expectations of future mobile success. The perception in the stock market is that Pokemon Go is a hit and Nintendo is the best pure play to get exposure, but it seems like the smart money realizes that this could be the tip of the mobile revenue iceberg for the Big N.

Full Disclosure:

At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long Apple via AAPL common stock and options

Long Nintendo via NTDOY ADR

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

From The Chatty

  • reply
    July 12, 2016 5:49 AM

    Asif Khan posted a new article, How Much Money is Nintendo Going to Make off of Pokemon Go?

    • reply
      July 12, 2016 6:57 AM

      So, how is the developer, Niantic being paid?

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        July 12, 2016 7:26 AM

        Nintendo will probably buy Niantic if they pull off a second mobile game. Pokemon Go I think is the trial project for their partnership.

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          July 12, 2016 8:08 AM

          I think Niantic would prefer to stay independent. They almost left Google so they could work on their own projects. Pokémon Go was a cash infusion to keep the lights on, but it's not the only project they want to work on, and I don't think making Nintendo mobile titles forever is a good deal for them long term. Before this, they wanted to do a game that had a book and movie tie-in.

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            July 12, 2016 8:46 AM

            They did leave Google but i think it was a more of a misfit because google didnt have gaming in mind for its priorities

            I could see niantic cross polinating w nintendo like the way rarelabs did back in the n64 days

        • reply
          July 12, 2016 3:46 PM

          There are other Western developers like Retro and Next Level that produce exclusively for Nintendo while being independent. Niantic could to the same.

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        July 12, 2016 9:54 AM

        I believe the $30 million of funding was their payment.

    • reply
      July 12, 2016 7:13 AM

      "Pokemon Go could generate almost $1 Billion of sales annually if it stays atop both the App Store and Google Play"

      Not too shabby!

    • reply
      July 12, 2016 7:55 AM

      Can we change our slogan to Do It For Nintendo?

    • reply
      July 12, 2016 8:40 AM

      I was curious about this, nice breakdown.

    • reply
      July 12, 2016 8:50 AM

      Great article, thanks for the breakdown.

      Who/what is Creatures and why do they have a 1/3 share in the pokemon company?

    • reply
      July 12, 2016 10:12 AM

      Stocknews, it gets you dividends!

      • reply
        July 12, 2016 10:20 AM

        I know, 3 days in a row of writing about stocks :/

        • reply
          July 12, 2016 10:21 AM

          No worries, I enjoy these articles!

        • reply
          July 12, 2016 10:39 AM

          They're good stuff, easy to read for dummies like me, and not something the other sites are doing, so keep it up

        • reply
          July 12, 2016 10:53 AM

          Please don't stop. I enjoy them immensely and it's a great edge over competitor sites.

        • reply
          July 12, 2016 11:54 AM

          Dude, I really enjoy your financial content. It's very solid.

          • reply
            July 12, 2016 11:58 AM

            Yeah, whether it's chatty thread posts or front page, I think this is pretty interesting stuff. Few people in the gaming world have the proper skills to produce coverage like this. I find it pretty interesting even if I'm not an active investor in video game stocks.

          • reply
            July 12, 2016 7:17 PM

            He is like a good version of that videogames analyst that you always used to hear from a few years ago. Can't remember his name...

        • reply
          July 12, 2016 3:35 PM

          It separates Shacknews from other gaming sites. Keep it up.

        • reply
          July 12, 2016 4:21 PM

          I like these articles! We're all old farts now, so it's not bad to know.

        • reply
          July 12, 2016 6:30 PM

          Nothing wrong with that. How many other game sites have articles about stocks? It's nice to differentiate your site from others.

    • rms
      reply
      July 12, 2016 11:02 AM

      Awesome article!!

    • reply
      July 12, 2016 11:18 AM

      About three fiddy.

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      July 12, 2016 11:28 AM

      Pokemon Go is just a fad. It's gonna fade away in about a month

      • reply
        July 12, 2016 11:38 AM

        Draw Something...

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        July 12, 2016 7:21 PM

        a lot will depend on how they expand it. if they make it into a clash of clans type game where you can make clans and fight people, that would be super rad

    • reply
      July 12, 2016 11:56 AM

      You're hitting the old man demographic we've got going on here by intersecting investment news and video games. Even just investing news on its own like you've posted in the past, it's a great way to target your (i'd say) unique demographic here.

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      July 12, 2016 3:41 PM

      holy shit, google is making bank!

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        July 12, 2016 4:19 PM

        Depends. Apple users tend to spend more money on in app purchases than Android, but Google gets 23% of that revenue too. Kinda win win.

        GG, Virus.

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          July 12, 2016 4:36 PM

          It'd be 100% if they hadn't cut Niantic loose.

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            July 12, 2016 4:37 PM

            You could argue that this app wouldn't have happened if Google didn't spin off Niantic. The joint venture is what drove Nintendo to do this in the first place.

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              July 12, 2016 5:00 PM

              It's possible. You could also say that Niantic wouldn't have made an ambitious partnership if they weren't desperate to get a stable income source post splitting with Google. A year and a half ago, they were ramping up for a new AR game called Endgame, which was going to have book and possible movie tie-ins to a sort of Hunger Games-ish young adult fiction series. I suspect that developing an audience for the series was a longer term prospect and a gamble if it would ever even happen, so the pivot to Pokemon Go was sudden and shelved Endgame for the foreseeable future. If they were still under Google, I think they would have been more likely to ride out the wait to make a game that seemed more in their wheelhouse with an evolving cross-media story.

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                July 12, 2016 5:11 PM

                Also, at the time, Ingress had no in-game monetization and relied on business partnerships to generate revenue. In-app purchases were added soon after the split, but I don't think it's seen much traction among older players who don't need the boost, and the game isn't attracting enough new players to pay off. They may have been looking to make a game that was easier to monetize with IAPs on day 1.

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      July 12, 2016 4:00 PM

      A shit load of money, playaaaaaaa

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      July 12, 2016 5:48 PM

      Team Valor bitches!

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      July 12, 2016 6:36 PM

      I have doubts about the profitability of this game. I think it has zero chance of maintaining it's position at the top of the app list. I think 99% of the player base will not make more then one in-app purchase. I also think that the player base will shrink by more then 90% in the next 30 days. The thing is still going to make a lot of money, a lot more then most F2P phone games, but really this thing is just a fad, a flash in the pan. It's driven more by Facebook hype then anything else, and that's going to be gone in a week.

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      July 12, 2016 7:57 PM

      There are more people watching Pokémon Go on Twitch than are watching DotA 2.

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        July 12, 2016 11:57 PM

        Think how many more are watching porn though.... ..

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      July 12, 2016 8:11 PM

      They're not just doing it for money....they're doing it for a shitload of money!

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      July 12, 2016 11:51 PM

      I love pie charts... !!!

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      July 17, 2016 6:57 AM

      Thanks for the break down. But you missed an important piece and that is the margins on infrastructure for Google.

      You need a Google account, it uses Google Maps, Google Earth, and a bunch of other Google APIs.

      So Google will get the revenue from infrastructure and their margin.

      The long term benefit will be the data. With this game using Google Maps and you are logged into your Google account I would expect that Google will get the data.