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Nintendo, Tencent Team Up -- WSJ

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04/19/2019 | 02:48am EDT

By Takashi Mochizuki in Tokyo and Shan Li in Beijing

Nintendo Co. intends to sell its Switch console in China in partnership with Chinese technology giant Tencent Holdings Ltd., potentially opening a market long closed for the Japanese videogame maker's flagship consoles.

The game-industry regulator in China's southern Guangdong province said Thursday it has provisionally approved Tencent's application to sell the "New Super Mario Bros. U Deluxe" game for the Switch, pending a comment period that ends April 24.

Tencent filed in Guangdong because it is based in the province and the decision applies nationally, analysts said. You Yunting, a partner with Shanghai-based DeBund Law Offices, said the companies would need another license from China's central publishing regulator before they can sell games for the Switch.

A spokeswoman for Tencent, the world's largest videogame company by revenue, declined to comment beyond the regulator's announcement. A Nintendo spokesman confirmed that the company is working with Tencent on applications to Chinese regulators but declined to give details such as when the products would go on sale.

Analysts have long expected the two companies would collaborate in selling the Switch after Tencent made one of its flagship online games, "Arena of Valor," for the Switch. Nintendo's chief executive, Shuntaro Furukawa, when asked about the company's long-delayed foray into the Chinese videogame console market, had said Nintendo could move ahead once it found a good partner.

Some Chinese consumers have already gotten their hands on a Switch thanks to gray-market imports from places including Japan and Hong Kong. Daniel Ahmad, an analyst at Niko Partners, said that official distribution and marketing by Tencent could allow the device to "reach a much broader audience."

The Switch was introduced in March 2017 globally and sold 32.3 million units as of December last year, according to Nintendo.

China barred the sale of videogame consoles for years but began easing the rules about five years ago, paving the way for Microsoft Corp.'s Xbox One and Sony Corp.'s PlayStation 4 to enter the market.

Nintendo tried to enter China with some smaller machines including the iQue Player with a Chinese-American entrepreneur in 2003. But it didn't succeed because it was hard for consumers to find game for the machines.

Tencent's partnership with Nintendo isn't likely to produce large revenue in China right away because console games make up less than 3% of the country's overall gaming market, said Shawn Yang, managing director of Blue Lotus Capital Advisors. He said most people in China, the world's largest videogame market, play games on smartphones or personal computers.

Other challenges for foreign companies include piracy and unpredictable regulatory moves. Chinese authorities halted videogame approvals for nine months last year, sending down the stock prices of companies including Tencent.

Mr. Yang said the Nintendo-Tencent tie-up would lead to more lucrative opportunities for both companies, including Tencent potentially making or distributing mobile games using Nintendo characters from franchises such as Mario the plumber and Legend of Zelda.

--Yang Jie in Beijing contributed to this article.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com and Shan Li at shan.li@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
NINTENDO CO., LTD 0.87% 42830 End-of-day quote.50.76%
TENCENT HOLDINGS LTD -0.24% 337.6 End-of-day quote.7.24%
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Financials (JPY)
Sales 2020 1 297 B
EBIT 2020 317 B
Net income 2020 230 B
Finance 2020 1 060 B
Yield 2020 2,20%
P/E ratio 2020 22,3x
P/E ratio 2021 18,3x
EV / Sales2020 3,12x
EV / Sales2021 2,86x
Capitalization 5 102 B
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Mean consensus OUTPERFORM
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Average target price 48 064,71  JPY
Last Close Price 42 830,00  JPY
Spread / Highest target 49,7%
Spread / Average Target 12,2%
Spread / Lowest Target -20,6%
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Shuntaro Furukawa President & Representative Director
Satoru Shibata Director, General Manager-Sales & Operations
Hajime Murakami Executive Officer & GM-Administration
Ko Shiota Director, GM-Technology & Development
Shigeru Miyamoto Representative Director
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