The Best Investment Ever?

When it comes to prevailing manias, there is everything else, and then there is Pokemon Go.

 

And when it comes to those who stand to profit from said Pokemon mania, nobody is a bigger winner than Nintendo which less than two years ago became a part-owner of Niantic creator Pokemon Go.

The relationship is as follows.

Niantic was created as a spinoff from Google’s (now Alphabet) Google Maps team. Google Vice President John Hanke, who was heading up Google Maps at the time, formed Niantic Labs in 2010 as an internal venture startup, staffed mainly by members of the Google Maps team. With a vision of “getting the people of the world outside”, Niantic Labs’ first projects were location-based information app Field Trip and simulated war game app Ingress. Ingress, which gained popularity particularly among users with high IT literacy, reached 10m total downloads (worldwide) in February 2015 and significantly boosted Niantic Labs’ name recognition. Ingress has a science fiction back story and is a team-based simulated war game that utilizes GPS location data and map data. Niantic used system data from Ingress to create Pokémon GO.

The relationship among Niantic, Nintendo, and the Pokemon Company came about in April 2014 thanks to the April Fool’s Day project Pokemon Challenge, in which players captured Pokemon that appeared on Google Maps. The project was developed by the Google Maps team, including Niantic Labs, with the cooperation of Nintendo and the Pokemon Company. Niantic Labs was subsequently spun off from Google in August 2015. The company name was changed to Niantic, Inc., and in September it announced the development of Pokémon GO. In October, Niantic secured a total of $20 million in funding from Nintendo, the Pokemon Company, and Google.

 

That was the investment.

What about the return?

Well, we only have to look at the move in the stock price of Nintendo, which in just the past two weeks has more than doubled its market cap to over $42 billion, gaining some $22 billion in market cap.

 

To calculate the return, let's generously assume that Nintendo was responsible for the entire $20mm initial investment (it was probably less). What a simple XIRR analysis reveals, is that the $22 billion boost in market cap relative to the $20 million initial investment is nothing short of a mindblowing 1,550,000% IRR, or a cash on cash return of 110,000% in less than one year.

 

Of course, this "analysis" is rather simplistic, as it assumes full monetization of the market cap increase, something which may prove problematic once the market moves beyond the mania phase.  That in turn will likely be accelerated with statements such as this one:

  • Nintendo says current forecasts include Pokemon Go Plus sales, according to statement.
  • Has no plans at the moment to adjust earnings forecasts, will update forecasts if it becomes necessary

But skepticism aside, let's celebrate what - as of this moment - may have been the best investment of the year, if not ever... For now.