People from coast to coast are falling in love with Pokemon Go, and so are some companies. Count Apple (AAPL) among them. With a share price that has been under pressure this year because of disappointing earnings, Apple may wind up with an unexpected bottom-line boost from Pokemon Go.
Though the game is free to download, players access features that give them a competitive edge by purchasing PokeCoins using "real" money. These in-app sales could net Apple $3 billion over the next year or two, topping the $2 billion that Activision Blizzard's (AVTI) Candy Crush, the next most popular mobile game, earned in 2013 and 2014, according to Needham & Co. analyst Laura Martin. She estimates that Apple reaps about 30 percent of the in-app revenue game players spend on its devices.
Apple, which reports quarterly results on July 26, has seen its stock price drop more than 5 percent this year as Wall Street fretted about the sales slowdown in iPhones, the company's most profitable product. However, the shares have gained almost 4 percent over the past month amid a broader market rally.
But Pokemon Go is one reason for investors' optimism. Nintendo (NTDOY), which owns stakes in the Pokemon Co. and its developer Niantic, seems to be benefiting the most from the craze (which has seen some players injure themselves, in one case falling from a cliff).
The Japanese video-game company's shares have surged since Pokemon Go launched on mobile devices in the U.S., causing Nintendo's market capitalization to more than double. But according to Martin, Apple will earn more cash flow in the near term than Nintendo will from Pokemon Go.
"We expect [Apple's] mobile platform to participate in all future mobile content hits, not just Pokemon Go," wrote Martin, who rates the stock as "strong buy," in a note to clients.
Piper Jaffray analyst Gene Munster, one of Apple's most vocal supporters on Wall Street, isn't sure how much financial help Apple will get from "Pokemon magic."
"Apple's services business benefits from hit games' in-app purchases, but we don't know where the time spent is coming from, and if those other games being played less offset the positive impact of Pokemon," said Munster, who has an "overweight" rating on the stock. "From our end, we just don't have enough to make a prediction."
Data from Pipper Jaffray shows interest in Pokemon Go continues to be strong, though it has faded somewhat since the launch. Munster said that's to be expected and isn't a concern given the game's strong start. Indeed, as Needham's Martin pointed out, market research firm Slice Intelligence found out that Pokemon Go made about as much revenue as every other mobile app combined on July 10.
Regardless of its impact on Apple's earnings, Pokemon Go has made an impression on Wall Street. The game uses a technology called "augmented reality" to display the cute on-screen monsters that players need to capture in real-world settings.
But as Piper Jaffray's Munster noted, some investors wonder if the technology and others like it aren't more than a fad. However, thanks to Pokemon Go's success, Apple -- along with Facebook (FB), Alphabet's Google (GOOG) and venture capital firms -- are increasing their investments in augmented reality and related technologies to try duplicating Nintendo's success, the analyst wrote.
For these multibillion-dollar companies, Pokemon Go is hardly child's play.