Pokemon Go is a free-to-play, augmented reality, location based game. It was developed by Niantic labs for iOS and Android devices like smartphones or tablets. Making use of the widely popular Pokemon intellectual property, the game has become a worldwide phenomenon, with millions of people having downloaded and playing the game.

The game is played based on GPS locations, with certain areas of interest dubbed “Pokestops” or “Gyms” where players can obtain items or battle their Pokemon. Various Pokemon would appear around the map and players would explore the areas to attempt to catch these Pokemon.

Released on 6^th July 2016, the game was first released in Australia, New Zealand and recently released in Singapore and other South East Asian countries on 6^th August. Since release, the game surpassed 50 mn downloads in the first 19 days, and almost hit 100 mn downloads in its first month. It has raked in a record USD200 mn in revenue in its first month. In comparison, other popular game apps, Clash Royale and Candy Crush, earned USD125 mn and USD 25 mn respectively in their first month.

With future updates coming for the game, including trading, new rare Pokemon, battles etc, it seems that there might be more longevity and sustainability for the game.

Investment Action?

While Nintendo Co Ltd, which listed on the Tokyo exchange, is credited with Pokemon, it does not actually fully own the game. When the game was released, Nintendo surged over 100%, followed by a close to 30% fall in the share price when Nintendo clarified that they do not fully own the game.

The Pokemon Company, a private company, is another company that might be wrongly credited with the Pokemon Go game. It is a company that was established to handle the marketing and licensing of the Pokemon franchise, created by the 3 businesses that hold the copyrights of Pokemon, Nintendo, Game Freak and Creatures.

Niantic Inc. is the company that is actually responsible for the creation and maintenance of the game. The company was initially founded as an internal start up by Google in 2010. The founder, John Hanke, was part of the team that helped develop what would eventually become Google Earth. Niantic Inc would eventually be spun off by Google in 2015, following Google’s restructure as Alphabet Inc. During the spin off, Niantic announced that Google, Nintendo and the Pokemon Company would invest up to USD 30 mn in the company. Unfortunately Niantic Inc. itself remains a private entity for now and is not listed on any exchange.

Apple Inc. is currently trading at USD 108.03 per share, with a PER of 12.68 and a dividend yield of 2.11%. Overall we are positive on Apple given their strong brand, loyal customer base and solid balance sheet. We have a BUY rating on AAPL with a target price of USD 114.74. Since our first initiation on 10 May, share price has risen c.16% from USD 92.79.

Alphabet Inc., or Google, is currently trading at USD 793.60 per share, with a PER of 30.12. GOOGL currently does not pay out a dividend. Google is also more likely to benefit directly from the success of Pokemon Go. There are more Android users compared to iOS users, meaning Google may have a bigger slice of the revenue from the game’s IAPs, as the company that spun off Niantic Inc and that directly invested in them, it is very likely that Google owns part of Niantic, giving it greater share of Pokemon Go’s profits. Overall we are positive on GOOGL based on their strong brand, its enormous user base and their solid balance sheet.

Best Buy (NYSE:BBY) GameStop Corp (NYSE:GME) & Five Below Inc (NASDAQ:FIVE)

While these companies may not be able to partake directly from the revenues of Pokemon Go, the game itself may have ripple effects that could benefit certain segments of the retail market that these companies could benefit from.

Best Buy Co Inc sells consumer electronics, computing and mobile phones, entertainment, appliances, services and others. Pokemon Go as a mobile game is a large drain on smartphone batteries, which might create demand for users to buy portable chargers and other such accessories. Best Buy recently reported their quarterly earnings on 23^rd August 2016, which did much better than consensus estimates, earning an EPS of USD 0.57 vs estimates of USD 0.43, prompting a 19.6% increase in its share price. It is important to note that the recent quarter earnings would not have included much spillover effect from Pokemon Go yet, if any, as the game was released very late into the recent quarter. Best Buy Co Inc is currently trading at USD 39.50 per share with a PER of 13.39 after the spike. The company currently has a yield of 2.83%. The company in the past was beaten down due to poor expectation of sales given the new online retail environment. Overall we are positive on Best Buy Co Inc,. The company has been taking steps to adapt to the new retail sales environment, growing their online sales from 8.6% of domestic revenue to 10.6% q-o-q.

Six Flags Entertainment Corp (NYSE:SIX), McDonald’s Corporation (NYSE:MCD) & Starbucks Corporation (NASDAQ:SBUX)

Pokemon Go is a location based game, requiring players to actively travel around, as such, it is highly likely that businesses that benefit from higher traffic would also be buoyed by the popularity of the game.

Six Flags Entertainment Corp runs theme parks in USA. The company has embraced the success of Pokemon Go and has started to do marketing centered on the game. They have created events around Pokemon Go as well as publishing a player’s guide around the many Poke stops and gyms within their theme parks. While there is nothing unique about playing the game within the theme parks themselves, families might be more encouraged to plan day trips to play the game while on vacation. Six Flags is currently trading at USD 50.31 with a PER of 27.11. The company currently pays a dividend of 4.60%. We feel that the stock is fairly valued at current prices.

McDonald’s Corporation is another company that might benefit from the popularity of Pokemon Go. Their franchised restaurants serve fast food meals and are often situated in prime locations that see high human traffic, which the underlying program for Pokemon Go usually designates as Poke stops or gyms. Players could possibly decide to go into a McDonalds to seek refreshments after walking about and playing the game. McDonald’s Japan recently also partnered with Niantic to make nearly 3000 restaurants designated into Poke stops and gyms in an effort to lure players into the restaurant. While it is still too early to tell if such a deal will continue to have its desired impact, initial reports for the month of July seem to indicate that McDonald’s Japan saw same store sales jump almost 27% y-o-y, with franchise owners attributing at least 10% of the spike in sales directly to the game. In collaboration with the partnership with Pokemon Go, McDonalds Japan also started serving Happy Meals with Pokemon toys. McDonalds is currently trading at USD 114.87 with a PER of 21.10. The company has a dividend yield of 3.10%. Overall we are positive on MCD, given its position in the fast food market, strong brand and solid balance sheet. If the surge from Pokemon Go continues to prove successful for McDonalds Japan, the company may decide to implement the same partnership across its other stores around the world, which if they see the same success as Japan, could lead to greater sales for the company.

Starbucks Corporation roast markets and retails specialty coffee. Starbucks is on this list of potential companies for similar reasons as McDonalds; it is likely to see more traffic to stores on the back of higher traffic by players of the game. Unlike McDonalds however, Starbucks does not currently have a deal to partner with Niantic to make its stores Poke stops or gyms. If the experiment by McDonalds Japan can prove to have its desired impact by partnering with Niantic, it is likely other companies might wish to replicate that partnership, perhaps Starbucks included. Starbucks is currently trading at USD 57.09 with a PER of 32.22. The company pays a dividend yield of 1.40%. Overall we are positive on Starbucks given its strong brand and its strong growth.