Company loses US$6.7 billion in market value after minimizing game's impact on its income

Nintendo 's shares on the Japanese stock market dropped by 18 percent on Monday, and is dropping as much as six percent on Tuesday, after Nintendo issued a report last Friday. The report noted that company expected the impact of the Pokémon Go game on its annual net income to be limited, and clarified that it did not develop the game. The company's share prices had doubled since the release of the game on July 6, with a market capitalization of 4.5 trillion yen (US$42.5 billion) as of last Tuesday. Monday's stock price drop reduced the company's market value by about US$6.7 billion.

The company's market value stood at 109 times the company's own projected net income. It must report an annual net income of about 200 billion yen (about US$1.90 billion) to justify that value. The company projects a net income of 35 billion yen. Nintendo will report first-quarter results on Wednesday. Nintendo 's Friday statement noted that the company was not "modifying [its] consolidated financial forecast for now."

The 18-percent drop is the most that share prices are allowed to drop in one day on the Tokyo Stock Exchange. It is the company's biggest drop in 26 years. Nintendo shares still hold a price-earning ratio of 80. On July 5, before Pokémon Go's release, Nintendo stock was valued at 14,490 yen (US$136.59). As of last Tuesday, on July 19, it was valued at 31,770 yen (US$299.49). The company's stock price is currently valued at 23,220 yen (US$218.46).

McDonald's Holdings Co.'s shares also fell 12%, after experiencing a 23% rise last Tuesday due to reports that it will offer sponsored content in the Pokémon Go app in Japan.

While Nintendo did not directly develop the Pokémon Go game, the company, alongside Google and The Pokémon Company, invested a total of US$20 million in the game's developer Niantic Labs. Nintendo also owns 32% of The Pokémon Company, and it is the only publicly traded company in The Pokémon Company joint company, with the other two companies GAME FREAK and Creatures being privately held. Nintendo is producing the " Pokémon GO Plus" peripheral device, which is scheduled for release in Japan near the end of July. The company said that it has already taken the Pokémon GO app release and the " Pokémon GO Plus" release into account when it made its financial forecasts in April regarding the financial year that will end on March 31, 2017.

According to Macquarie Securities analyst David Gibson, Nintendo stands to receive roughly 13 percent of earnings from Pokémon Go .

The Pokémon GO app launched in select countries on July 6 and has since launched in more than 35 countries, including in Japan last week.

Nintendo is planning to release smartphone apps based on Fire Emblem and Animal Crossing this fall. Nintendo launched its first smartphone game, Miitomo , in March and it has reached more than 10 million users worldwide.

Thanks to Stuart Smith for the news tip

Sources: CNet (Daniel Van Boom), Nikkei, Bloomberg (Yuji Nakamura, Takashi Amano )

Update: Typo fixed. Thanks, Proz512