Apple unlocks $3b business in Pokemon Go

When the virtual world makes real money it might be time to introduce Apple Glass

Apple, iOS, iPhone, iPad, VR, Google Glass, Nintendo, Pokemon Go, mobile, apps

My social media feeds are full of tales of people chasing Pokemon using Pokemon Go app. Its overnight success has doubled Nintendo’s share price. It also represents a huge and underappreciated opportunity for Apple, the analysts at Needham & Co. explain in a report shared with me today.

There’s nothing virtual about this reality

“We estimate that 80 percent of total Pokemon Go spending will be spent on an iOS devices, and APPL keeps 30 percent,” said Needham & Co. analysts, Laura Martin and Dan Medina.

“Fundamentally, we calculate that Apple could generate $3 billion of incremental high-margin revenue from Pokémon Go over the next 12-24 months,” the said.

The analysts rate Apple a “strong buy” (target price, $150/share), arguing that Apple’s “near-term economics are better than Nintendo’s, with lower risk because its upside is not tied to a single mobile game property.”

Apple trades at 1.8x revenue, so adding $3 billion should translate into a $5.4 billion increase in the iPhone maker’s market capital.

That’s the equivalent of $1/share.

Just from Pokemon Go...

Shake your iOS money-maker

“As background, Candy Crush generated more than $1B of revenue in each if 2013 and 2014 and Pokémon Go’s ratio of paid users to total users is 10x higher than Candy Crush’s and time spent is already longer for Pokémon Go after 2 weeks than for Candy Crush was at its peak,” they added.

Sensor Tower on July 11 (6 days after its July 6 US launch) claimed Pokémon Go was generating US revenue of $1.6m per day on iOS, from the 10m downloads on iOS devices. AppInstitute reckons the game is downloaded on iOS devices twice as often as on Android in the US. (“20% of US users pay an average of $0.80/day and the other 80% pay nothing,” said Needham & Co).

The world’s greatest CDN

It’s all about services, of course.

“Apple is the global distribution platform for all future mobile content winners (not just Pokémon Go), with the wealthiest consumers,” said Needham & Co, who believe 80 percent of Nintendo’s Pokemon Go in-app revenue is being generated by iOS users.

This real cash bonanza is likely to be followed by a wave of similar in-app purchase financed VR titles designed to capitalize on the overnight success of this game.

What’s key is that Nintendo – which has doubled its market value to $42.5b based on the success of the title – owns just a third of the Pokemon company. With Apple taking 30 percent of revenue generated through iOS sales, including in-app sales, the analysts note:

“We think Apple’s near-term cash flow from Pokémon Go is higher than Nintendo, and we expect its mobile platform to participate in all future mobile content hits, not just Pokémon Go.”

One more thing

Think about this: Apple has been developing VR solutions for years. It hasn’t released them – partially because the technology hasn’t been good enough to guarantee a great experience. Beyond a few real world usage scenarios, (medical, military), Google Glass is a joke.

However, virtual reality games like Pokemon Go in combination with the advanced graphics capabilities you get from Metal and industry-defining mobile processors such as the forthcoming A10 series suggests this might now be the moment for Apple to introduce its take on a VR headset.

There are associated opportunities, also. Will Apple retail stores become Pokemon Gyms when iPhone 7 ships?

With Apple prepping a major new product salvo this season, opportunity knocks.

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Copyright © 2016 IDG Communications, Inc.

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