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Nintendo Partners Tencent to Boost China Video Game Footprint

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Nintendo (NTDOY - Free Report) recently announced that it has teamed up with Tencent Holdings (TCEHY - Free Report) to sell the Switch console in China, beginning Dec 10.

Per Bloomberg report, Switch will sell for 2,099 yuan ($297), almost the same as elsewhere in the world. Moreover, Super Mario Bros. U Deluxe, Mario Kart 8 Deluxe and Mario Odyssey will be the Switch titles initially available to Chinese video game consumers in the coming weeks.
Nintendo is also preparing to launch Switch Lite, a cheaper version of the console, in China at a later date.

Moreover, Nintendo and Tencent are collaborating to localize the hugely popular Zelda: Breath of the Wild and Pokemon: Lets Go titles in China.

Tencent is also working with international developers and studios as well as a Chinese indie developer to introduce more third-party titles for the Switch. This is expected to further increase the appeal of the console in China.

Will China Push Boost Nintendo’s Top Line?

Notably, Tencent dominates the video gaming space in China. Per Gamma Data (CNG), games published by Tencent account for more than half of the entire Chinese market. Hence, the partnership is likely to help Nintendo gain a foothold in China, the world’s largest gaming market.

Per Niko, the Chinese console gaming industry generated $761.7 million in revenues in 2018, which is expected to grow by 11% by the end of this year. Further, the launch of Switch and new consoles from Microsoft (MSFT - Free Report) and Sony (SNE - Free Report) are expected to double total console hardware and TV and console game software sales to $1.5 billion by 2023.

Additionally, Switch continues to enjoy strong popularity with lifetime sales of 41.67 million units. Notably, in third quarter 2019, Nintendo earned ¥252.9 billion (93% of total revenues) just from the sale of Switch consoles.

Nevertheless, Nintendo is expected to face significant competition from Microsoft and Sony, two well-established console players in the China market. Per Statcounter, Sony and Microsoft have a market share of 64.2% and 29.2% respectively, while Nintendo’s share is 6.6% in China.

Moreover, the rise of smartphones as the dominant gaming platform in China is expected to dampen Nintendo’s sales. Gamers might also be reluctant to buy the console as the number of games approved by China’s government on the platform is limited.

Zacks Rank

Currently, Nintendo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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