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Pokémon Go — investment value as elusive as Pikachu

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Pokémon Go — investment value as elusive as Pikachu.

It has been hard to miss the Pokémon Go phenomenon that took the world by storm last month. In the 22 days following launch, Pokémon Go clocked more downloads in the US alone than the total downloads of Instagram and YouTube in the past six months. Pokémon Go is an 'augmented reality' game that is popular because it's free, easy to download and play and it's a revamp of the original Pokémon series that was a huge success when it launched 20 years ago.

As a game, Pokémon Go has been an unequivocal success. However, as an investment, well, the jury's still out.

Pokémon Go was developed by app designer Niantic, which was until September 2015 a division of Google. Niantic is now part owned by Google, Nintendo and The Pokémon Company, but information is scant as to who owns what.

Analysts are divided as to the long term value inherent in Pokémon Go. The game is free, and while players can buy items with real money that help them lure Pokémon, this revenue is unlikely to be significant. Disclosure from Nintendo has been poor to date, and as Bloomberg recently reported 'Nintendo stood by for more than two weeks as the game's release added $US20 billion to its market value. Then it announced the earnings impact from the game will be limited, and it was not modifying its 2017 profit forecast, suggesting the upside is underwhelming.'

The long-term success of Pokémon Go will depend on the game's update schedule — perhaps introducing multi-player and battle functions and hopefully they'll find ways to monetise this phenomenon. And of course there might be brand extensions like movies, theme parks, merchandise and in-app advertising.

In the computer games sector, fans often have a better experience than investors. We are happy to enjoy this game as players (well, some of us) and as investors through our holding in Alphabet which gives us a broad exposure to the augmented reality and virtual reality revolution.

 

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