Saxo Bank goes short on Nintendo after Pokemon Go surge

Saxo Bank told clients its equities team had placed a short position on Nintendo stock that will activate on Wednesday's Tokyo opening bell after its price soared 125% on the launch of its Pokémon Go game.

Pokémon Go, an 'augmented reality' game available as a smartphone app and encourages users to roam the real world to search and catch animated monsters that are scattered across a map on their phone screen, was launched in the US and Australia on 6 July and has since been rolled out in several other countries including the UK and Germany.

Saxo observed that Pokemon Go "has reached the level of cultural phenomenon in every country in which it has been released", becoming the largest ever mobile game as it attracted unprecedented levels of gamers in such a short space of time, with around 4m app downloads per day.

The game is seeing an average revenue per daily active user (ARPDAU) of $0.25, which is twice the average for casual games and higher than the previous record ARPDAU of $0.20 that was generated by King Digital's Candy Crush Saga.

Speaking to clients from Saxo's Copenhagen trading floor on a Tuesday video stream, head of equity strategy Peter Garnry said that while Pokémon Go's potential for advertisement placement and similar monetisation is extraordinarily strong, he was incredulous about the 125% stock price gain.

He said the game's high ARPDAU "still doesn't justify the current valuation".

Although the team had placed a short position, he issued words of caution: "This remains a high volatility stock so investors should look to scale in over a few sessions; it could still go higher."

On Tuesday Nintendo stock closed at 31,770 yen, up 14% on the day and up from the 14,055 on the day before Pokemon launch.