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Facebook's Entry Stirs Up Competition in Cloud Gaming Space

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The cloud-gaming space is heating up with Facebook jumping on the bandwagon of tech companies exploring this rapidly-growing space. Notably, the social media giant recently acquired Spanish cloud gaming company, PlayGiga in an effort to get a foothold in the market.

Facebook has been focusing on expanding its gaming efforts to diversify its revenue source. In 2018, the company launched Facebook Gaming, which allows users to livestream their gameplay, much similar to Amazon’s (AMZN - Free Report) Twitch.

Per a CNBC report, Facebook Gaming has more than 700 million monthly users.

Cloud Gaming Holds Solid Prospects

Cloud gaming, also known as “Netflix of games” or “gaming on demand”, has become an attractive space due to stellar growth projections in consumer spending.

Per Global Market Insights data, the cloud gaming market is expected to be worth $8 billion by 2025, witnessing CAGR of 25% from 2019 to 2025.

However, the biggest roadblock behind the adoption of cloud gaming is latency, which is the lag time between pressing a button on a controller and the responding action occurring on screen. Having local servers, better wireless controller hardware and the rapid development of 5G can help offset the issue.

This is why major cloud-computing providers like Alphabet (GOOGL - Free Report) division Google, Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) and Tencent have significant growth opportunities in the cloud-gaming market.

Let’s dig deep to find out what these giants are doing to gain a foothold in this promising space.

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Google & Microsoft Racing Ahead

Google publicly released Stadia on Nov 19 in selected countries. The premier edition is currently available for $129 with an optional Stadia Pro subscription of $10 per month.

Stadia enables users to stream games online on any device, such as smartphones, laptops, desktops and tablets. Moreover, users can play games on televisions with the aid of the Chromecast media stick connection.

Google is banking on its cloud-computing strength to offer a superior player experience by lowering latency. Additionally, Stadia’s dedicated controller connects to the Internet directly via Wi-Fi, further lowering latency.

However, Stadia received mixed reactions from critics due to its slightly inferior graphics compared to consoles and limited selection of games.

Meanwhile, Microsoft is gearing up to launch its cloud-gaming platform — XCloud in 2020, which is currently in public beta at the moment.

The platform will be available on phones, tablets, set-top boxes, TVs, which has a screen and an Internet connection. The platform is planned to be a complementary service to Microsoft’s Xbox One games consoles.

Moreover, the company recently partnered with South Korea based SK Telecom to bring 5G based cloud gaming to Korea. It also partnered with rival Sony for the joint development of cloud solutions in Microsoft Azure to support their respective content and game streaming services.

Microsoft has data centers around 54 different regions, globally. The company is relying on its Azure cloud-server network to serve players request locally, which will help reduce latency by shortening the distance between the end user and the data center.

Tencent & Amazon in the Fray

Tencent, one of China’s biggest gaming companies, recently partnered with NVIDIA (NVDA - Free Report) to bring cloud-based PC gaming to China.

Notably, Tencent Games’ START cloud gaming service, which began testing earlier this year, will be powered by NVIDIA’s GPU technology. The service will allow gamers to play AAA games on underpowered devices.

Tencent can leverage its own cloud infrastructure to stream games in China. Notably, the company holds rights to some of China’s biggest gaming titles.

Further, per CNET, Amazon, which already offers video-game streaming services via its Twitch platform, is planning to announce its cloud-gaming service. It is expected to release in 2020 and come with Twitch integration.

Notably, Amazon is a dominant name in the cloud-computing market courtesy of its Amazon Web Services (AWS), which offers significant leverage.

Per data from Canalys, AWS dominated the cloud infrastructure market with 32.6% market share, trailed by Microsoft Azure at 16.9% and Google Cloud at 6.9%.

Zacks Rank

While both NVIDIA and Microsoft currently carry a Zacks Rank #2 (Buy), Amazon, Facebook and Alphabet have 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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