One week ago, when we first reported that as Pokemon Go was taking the world by storm and was already soaking up more use time than all other time-wasting social app, with users wasting over 40 minutes daily with the app, we asked “will all those minutes eat away from Facebook use (clearly a negative for FB stock), or will US worker productivity, already abysmally low, decline even further as far less time and effort is dedicated to productive efforts. The answer: probably a mixture of both, although we eagerly await to see what “seasonally adjusted” excuses tenured economists come up to justify away that US GDP output continues to decline even more in the coming months and years, and nobody can figure out the reasons why.”
We also mused about the impact on ad revenue this “black swan” game would have for the more established platforms such as Facebook, Twitter, YouTube and so on.
Overnight, Citi’s Mark May picked up on this reasoning and released a note titled “The Pokémon GO Threat Is Real”, which confirmed that should the Pokemon juggernaut continue, then ad spending for traditional plaforms over the coming months may be jeopardized.
This is what Citi said:
The Pokemon GO Threat Is Real
Intro – Pokemon GO is taking the global app world by storm, and as of today remains the top ranked app by daily downloads in every major market in which it has been launched. This momentum coupled with the app’s strong user metrics, poses a serious risk to time spent in other apps, and in some cases, may even impact 3Q16 and 2016 revenue forecasts. That’s why in this week’s Internet Chart of the Week, we review average daily usage on Facebook, YouTube, Instagram, Google and Twitter before and after the Pokémon GO launch to gauge which companies will likely be the most impacted by the new app’s global success.
The Charts — According to Sensor Tower, the avg. U.S. iOS user is spending over 33 minutes playing Pokémon GO (PG) each day (data for 07/11/16). This places PG ahead of apps such as Facebook, Snapchat, Twitter, and Instagram for avg. time spent by a user per day (Fig. 2). Although we believe that PG is adding some incremental time to total smartphone time, we think it would be wrong to assume that the app’s success is not coming at the expense of other players. In order to gauge the potential impact to our coverage, we reviewed avg. daily usage for U.S. iOS users the week prior to the U.S. launch vs. the first full week after the launch (*Fig. 1 notes). As shown in Fig. 1, YouTube and TWTR are seeing the largest decreases in avg. time spent per day, while FB is the only app showing resiliency in the week post-launch. Although we cannot definitively confirm that PG is causing these trends, we think the game’s success is likely a significant contributor.
Other Factors to Consider — For those ready to thematically sell GOOGL on this data, we urge you to consider the various other (positive) impacts that PG could have on Alphabet. As we recently noted (here and here), the App economy is performing better than anticipated, driven primarily by robustness in the games category, and PG’s continued success should serve as an additional benefit to Google’s Play Store business. As shown in Fig. 4, we conservatively estimate that Google Play will see $77mn from PG over the next 12 months. In addition, Alphabet also stands to benefit from its ownership stake in Niantic, the creator of PG, which we estimate may now be worth ~$200mn (GOOGL’s stake). Last but not least, both FB and GOOGL will likely see advertising dollars flow their way as both platforms offer unique global reach and highly targeted data to fuel PG’s global expansion.
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