Nintendo Stock (NTDOY) Soars Beyond 30% Because Of Pokemon GO

If I did not get you to buy into the hype of Pokémon GO and Nintendo Ltd. (NTDOY) back in September 2015 or this past Friday, then hopefully the events surrounding the gaming revolutionaries will. As of 10:10 AM ET Monday morning, shares of Nintendo rose an incredible 32.90% due to the instant success of its new augmented-reality mobile game.

Nintendo Ltd. currently has a Zacks Rank #5 (Strong Sell). So, if you sold off your Nintendo stock before the release of Pokémon GO, it is completely understandable. The company’s EPS growth versus the previous quarter and year is down a whopping 188% and 37.5%, respectively. Sales growth is not much better, as it is also down 62.38% versus the previous quarter and down 23.42% versus the previous year.

However, if you decided to hold onto your Nintendo stock, or bought it within the last few weeks while it has been down, shares have risen over 85% since the launch of Pokémon GO Wednesday July 6. The company’s market cap has increased over 38% since the game’s release, which is a value of over $6.5 billion.

Pokémon GO has topped app download charts in the US, Australia, and New Zealand, has over 5 million downloads from the Google (NASDAQ:GOOGL) Play Store, and according to some market researchers, has already been installed on 5% of all Android smartphones in America and has already been installed more times after a week than Tinder in five years!

Tinder is not the only stalwart app that Pokémon GO is taking to the Pewter City Gym. Pokémon Go is coming for Twitter (TWTR) too, like Ash Ketchum making his way to the Elite Four. As of Friday, the “gotta catch ‘em all” app and its 3% of daily active users on Android figure is set to overtake the 3.5% of daily active users on Twitter, if it has not already. If you do not think this is impressive, keep in mind that Twitter has been around for a decade, while a vast majority of the world’s population was completely unaware of Pokémon Go two weeks ago.

Nintendo has simply been “crushin’ it” over the past few days, but it's worth remembering that the game is not solely made and overseen by the Japanese gaming company. The app is created by Niantic, an augmented reality game maker spun off from Alphabet’s (GOOGL) Google division back in October 2015, and it was built in collaboration with the Pokémon Company. Nintendo is an investor in both Niantic and the Pokémon Company. The app is free to download and Nintendo's revenue (which receives around 30% of Pokémon Go's revenue, says The Financial Times) generated by in-game microtransactions.

According to Mia Nagasaka of Morgan Stanley (NYSE:MS), Pokémon Go will need to create around $140 million to $196 million in turnover each month to have a significant impact on Nintendo's profits. She told CNBC that Pokémon Go is estimated to have made $3.9 million to $4.9 million on its first day of release, suggesting that the game will need to maintain its current success, or something close to it, consistently in order for the app to significantly impact Nintendo’s revenues.

Is Pokémon GO a craze or something sustainable is the key question. Bloomberg's Tim Culpan has drawn comparisons between the game's release and the launch of the Nintendo Wii in 2007. “Wii's novelty value came from having users physically play virtual games of tennis, baseball, golf and all manner of real or made-up sports,” writes Mr. Culpan. “It was fun, it got the kids off the couch, and it inspired friends to gather for Wii parties.”

He continues, “But the novelty didn't last, and neither did the stock's rally. The quick rise and fall of Wii, and the disappointing uptake of its successor Wii U, helped give birth to Pokémon Go.”

Determining whether this game is a trendy phase that peters out in a few months or the most popular mobile app for years to come is still to be determined, as Pokémon GO has only been operational for less than a week. It’s currently catching the world by storm, and Nintendo, the Pokémon Company, and Niantic need to build upon this success to make that game sustainable rather than riding this initial wave of success, because human beings and their trends are fickle.