The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First. 

Tencent Can Also Help Nintendo’s Switch Succeed In China

Summary:

• Nintendo’s stock posted a nine-year high last week after China’s Tencent announced it will release its hit mobile MOBA game to the Switch platform.
• The announcement only confirmed that the English version of Tencent’s Honor of Kings, Arena of Valor will launch on the Switch.
• However, my fearless forecast is that Tencent might also release a Switch-friendly version of Honor of Kings in China. Tencent could help Nintendo penetrate the Chinese console gaming industry.
• Tencent needs a presence in console gaming. This will help reduce its reliance on smartphone gamers.
• Nintendo still touts positive near and long-term algorithmic forecasts from I Know First.

Tencent’s (TCEHY) decision to release an English version of its hit Chinese mobile MOBA game, Honor of Kings, for Nintendo’s (NTDOY) hybrid portable/console Switch helped NTDOY post a nine-year high last week. Arena of Valor, the English version of Honor of Kings, definitely increased the international appeal of the Nintendo Switch. Arena of Valor will feature DC Comics-licensed heroes and it offers the same gameplay experience of the hit PC MOBA (Multiplayer Online Battle Arena) League of Legends.

(Source: Tencent Games)

Tencent is the world’s largest publisher of video games. Its backing of the Nintendo Switch could inspire other third-party developers to deliver their promise last year to release their hit games for the Switch. Arena of Valor was designed for mobile devices. Tencent Games will find it easy to port it to the Switch. Like 99% of smartphones/tablets of today, the Switch is also equipped with an ARM-based processor.

The Switch uses the powerful Nvidia (NVDA) Tegra X1 SoC (System on Chip). It should offer console-quality rendering of Arena of Valor. The Switch’s lifetime potential needs more game developers to support it. Tencent, the world’s top video games company, just made the Switch platform stronger.

Why Investors Should Care

The partnership with Nintendo is Tencent’s first foray into console gaming. Tencent owns the world’s top-grossing PC (League of Legends) games and mobile games (Honor of Kings, Clash of Clans, and Clash Royale). However, Tencent has negligible presence in console gaming. By bringing Arena of Valor to the Switch, Tencent could start having one of the world’s top-grossing console games too.

(Source: SuperData Research)

 Console gamers who longed for a PlayStation or Xbox version of Tencent’s hit PC MOBA game, League of Legends will be tempted to buy a Nintendo Switch and try Arena of Valor. Riot Games, the developer of League of Legends, never bothered to release a console version of League of Legends. Dock a Nintendo Switch to a 50-inch full HD TV set and Arena of Valor can give console gamers the same MOBA experience that League of Legends PC players now enjoy.

Furthermore, Tencent has compelling reasons to enter the console gaming sector. As per Newzoo’s latest 2017 report, global revenue from console gaming is bigger than the PC gaming sector, $33.5 billion versus $29.4 billion.

My fearless forecast is that Tencent’s release of Arena of Valor can help Nintendo sell 5 to 15 million more units of the Switch. Arena of Valor will be a free-to-play game but in-app purchases will probably generate $20 to $40 million in monthly sales. Nintendo will probably get 30% cut from any in-app purchases done through the Switch platform.

The Other Benefit of Being Friends With Tencent

Tencent’s support of the Switch is a long-term tailwind for Nintendo. We cannot dismiss the possibility that Tencent may also release a Switch version of the Chinese-only Honor of Kings. In other words, Nintendo’s console hardware business can probably find success in China with the assistance of Tencent. PlayStation and Xbox currently dominate China’s console gaming industry.

Given enough incentives, Tencent will be willing to market the Switch console to China’s video games fanatics. Tencent will also probably be willing to publish Chinese versions of the best-selling English Switch game titles. Nintendo’s Super Mario, Splatoon, and Zelda video games definitely have fans inside the Middle Kingdom.

China is now the biggest market for video games. Nintendo’s long-term prosperity requires it to have a presence in China’s $29 billion/year video games market. Tencent is a great ally that can help Nintendo start becoming relevant in China’s massive video games industry.

Conclusion

In spite of my misgivings about the continuing global short supply of the Switch, I now rate NTDOY as a buy. I am long Tencent. Tencent could really boost the fortune of Nintendo. Tencent might also release the Switch versions of its other hit mobile games. Clash of Clans and Clash Royale on the Switch would be awesome.

The Switch is an ARM-based hybrid console machine which could benefit more from Android/iOS mobile games developers supporting it. Tencent is the publisher of the Chinese version of Candy Crush Saga. I don’t see why Candy Crush Saga should not be ported to the Switch. My point is that if PC/console game developers remain aloof to the Nintendo Switch platform, mobile game developers/publishers like Tencent can make up for it.

My buy recommendation for NTDOY is in line with its positive near and long-term algorithmic forecasts from I Know First.

Past I Know First Success With NTDOY

I Know First has been bullish on NTDOY shares in past forecasts. On May 28th, 2016, an I Know First Analyst released a bullish article for NTDOY. Nintendo stock increased due to the launch of the latest gaming console, the Switch, which faced an extremely strong demand. Since the forecast’s release, NTDOY shares have gained 153.44%. See chart below.

(Source: Google Finance: NTDOY)

This bullish forecast for NTDOY was sent to I Know First subscribers on On May 28th, 2016. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.