Yahoo Finance Pokemon Go Shows Promise of Augmented Reality Products
Digital, fictional animals have seemingly overtaken the world. The new augmented reality game Pokemon Go has been downloaded more 75 million times by the latest estimates from SensorTower. On Google Play alone, it had been downloaded over 50 million times in just 19 days, making it the fastest app to reach that mark in the past two years.
While many assumed this success would have showered Nintendo with a large influx of capital, since it owns almost a third of The Pokemon Co., it didn't turn out to be the case. With Nintendo shares skyrocketing in the Tokyo market, the company had to issue a warning to investors that the impact of the game would be "limited." And then, to top it off, Nintendo reported a first-quarter loss of $232 million this week.
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Gamers might be winning at gathering characters, but Nintendo certainly isn't. But Pokemon Go has provided the first real-world example of what augmented reality can become. Users play by walking down the street, capturing animals that pop up on the screen as they pass a park bench or their favorite coffee shop, blending the phone and the real world. It's the promise that augmented reality has long offered, and one that now has been boosted by the game's popularity.
"Early success of Pokemon Go, the first mass adopted AR [augmented reality] game, helps prove the potential of AR, and we see similar ideas spreading to other content quickly," says Heather Bellini, Goldman Sachs researcher that has a focus on telecommunications, media and technology.
In a report following Pokemon Go's astronomical rise, Bellini revised the size that the augmented reality market could grow from $10 billion to $36 billion by 2025.
However, the players that will benefit from the augmented reality space are still only beginning to form, leaving it very much a nascent market. For those sold on the future of the technology, here are some companies to consider:
PTC targets the non-gaming possibilities. Late last year, software company PTC (PTC) bought Vuforia, an augmented reality platform targeting consumers, from Qualcomm (QCOM) for $65 million. PTC has since transitioned Vuforia as a platform to bring AR to manufacturers and industrial firms.
And early signs seem promising.
In June, PTC provided some insight into its plans for Vuforia at its annual Internet of Things conference LiveWorx. At the show, they provided demos of how a field service worker could use augmented reality to see "technical illustrations of service procedures" in real time, says Wedbush Securities analyst Steven Koenig. Essentially, the service employee could overlay a copy of the product onto the item that needs fixing, providing a map to determine what's wrong.
"The market is pretty nascent," Koenig says. "I don't think there's anybody as well positioned to go after the manufacturing market and probably the B2B market more generally."
PTC's augmented reality strategy coincides with an effort to cut costs and transform its subscription services -- it's transitioning from a license model where companies pay a one-time large fee for their software, to one based on yearly subscriptions.
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Plus, their IoT effort won't take hold for another couple of years, which forces Koenig to look out to 2021 to determine the success of the strategy. But he sees a $46 price target today, based on those projections, which provides a 14 percent upside.
Nvidia's chips offer power to gamers. On the gaming side of the augmented reality or virtual reality sphere, more possibilities crop up. While many companies are looking at building hardware to interact and utilize virtual reality, like Facebook (FB) and Alphabet (GOOG, GOOGL), Nvidia Corp. (NVDA) focuses on gaming chips. These high-powered chips are plugged into a desktop computer, which allows the machine to handle the graphics that the game utilizes. This gaming business accounts for about 56 percent of Nvidia's revenues.
Since virtual reality and augmented reality games remain targeted to the heavy gamer -- Pokemon aside -- these chips provide Nvidia a leg up. Instead of selling to Microsoft Corp.'s (MSFT) XBox or Sony Corp.'s (SNE) PlayStation, like its competitor Advanced Micro Devices (AMD), it sells to the consumer. This offers higher margins, Morningstar analyst Abhinav Davuluri says.
It also provides an opportunity to stretch the chips into other markets, like design companies that can use the technology while creating prototypes. The enterprise portion of the company is "an area of growth," Davuluri says.
The problem: growth of Nvidia's gaming, design and even its autonomous vehicle chips -- it's a big player in building technology for self-driving cars -- has already been priced into the company, Davuluri says. It's currently a $56 stock, but Davuluri prices it at $28.
Alphabet gained from Pokemon's rise. It's difficult to find many companies that have a strong augmented reality exposure because most of them are startups not traded on a public exchange. The creator of Pokemon Go, Niantic fits that mold.
However, Niantic was first created within Google. But last year, Google spun off Niantic then invested $20 million into the startup in October of 2015. This has given Google, and its parent company Alphabet, some exposure to the world's hottest game.
Plus, Alphabet has the possibility of selling ads in the space, no matter what AR or VR platform ends up connecting with users. However, for the $75 billion company now and the foreseeable future, any impact will be "immaterial," Bellini says.
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That's the case with many AR plays, at least until more Pokemon-esque crazes come about.
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