Nintendo rally sees its market value soar past Sony

By Andreas Illmer
Business reporter

image copyrightAFP

Think of a Japanese tech giant, a truly global player made in Japan - there's a good chance Sony will come to mind. Well, think again. Or rather - think Nintendo instead.

After the unprecedented rally in Nintendo's share price since the release of Pokemon Go, the gaming company has soared past Sony in terms of market value.

It's a juicy headline - but what does it actually mean? Is Nintendo now bigger than Sony? And does it even make sense to compare the two?

On Tuesday, Nintendo shares finished trading another 14% higher, meaning they have doubled in value since the launch of Pokemon Go on 6 July.

This puts Nintendo's overall market value at 4.36tn yen ($38bn; £28.8bn), topping Sony by 300bn yen.

And all this before Pokemon Go's even hit the streets in Nintendo's home market.

So, is the company's increased valuation justified?

"The very easy answer is yes," says Gerhard Fasol of Eurotechnology in Tokyo. "If the market thinks that's what a company is worth, then yes, it is justified."

After all, it is market value we're talking about.

'Huge potential'

But you have to go one step further, Fasol cautions, and ask whether these companies are actually comparable.

"Pokemon still has huge potential - just think of the intellectual property rights to the characters for instance," he explains. "A massive potential waiting to be harvested."

It is a key characteristic of the gaming industry that the success and performance of a game is extremely hard to predict and foresee.

media captionThe BBC's Chris Foxx took to the streets to explore some of the app's highs and lows

And any surge of the kind that Nintendo has seen warrants caution, analysts warn.

"We're in bubble territory now - the stock's vertiginous rally may not last," says Neil Wilson of ETX Capital. "It's broken so far clear of any support levels that a fall could be nasty for those who bought into the rally."

The phenomenal success of Pokemon Go has surprised even seasoned market players. Nintendo certainly was hoping for a hit, but even it must have been somewhat caught off guard by the frenzy its little virtual creatures have created around the globe.

It's a surprise success but one that if sustained can have a transforming impact on the fortunes of the company.

What's a Walkman?

What does a firm like Sony have that could compete in terms of market impact? It's known mostly as a hardware company and a very successful and solid one.

"The last time that Sony had a hit that could maybe be compared to Pokemon was probably the Walkman," Fasol points out.

The Walkman may seem like just yesterday to some, but to most Pokemon players you'd probably have to explain that it was a portable cassette player in the 1980s. And then you'd have to explain to them what a cassette was.

image captionA Walkman (for those too young to remember)

So Nintendo certainly has an edge with its current success.

A spike or a trend?

The success of Pokemon Go is shared in part with the developers - Google spin-off Niantic - and we can expect to see similar games from other companies soon.

Yet Nintendo has a head start. "The soaring stock price reflects the sentiment that Nintendo has hit upon a success case in mobile and augmented reality," David Corbin of industry website Tech in Asia told the BBC from Tokyo.

"And it can be applied to other characters from its IP library - like Super Mario Brothers or Legend of Zelda."

image copyrightEPA
image captionPokemon Go has rolled out in most markets but has yet to launch in Japan

Between 2006 and 2012, Nintendo profits soared on the back of its console success. During those years, the company's profits easily topped that of the established technology giants.

While that peak lasted a few years, it didn't last forever and more recently there was in fact concern that Nintendo was moving into mobile gaming way too late to still have an impact.

Pokemon Go may have silenced those concerns but whether Nintendo can ride that wave in the long term is - like much of the fortune in the gaming industry - unpredictable.

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