Nintendo Co. shares jumped Friday after China’s Tencent Holdings Ltd. won approval to distribute one of the company’s games for its Switch console — a sign the Japanese company may benefit from growth in the world’s largest games market.
Tencent received approval for the test version of New Super Mario Bros. U Deluxe for the compact device, according to a notice on the website of China’s Guangdong provincial culture and tourism department.
A Nintendo spokesman confirmed that Tencent had applied for the sale of Switch hardware, but could not comment specifically on the Guangdong approval saying it was just one part of the entire process.
Nintendo’s stock surged as much as 17 percent, the most on an intraday basis since September 2016.
Tencent could prove an invaluable ally for the Kyoto-based company in China, where gamers have historically shunned consoles in favor of smartphones and PCs, and the alliance could provide a jolt to growth prospects for the Switch.
Nintendo cut its outlook in January for the console’s shipments, raising questions about demand for the 3-year-old device.
“With its huge gamer population, China is like a dry sponge for Nintendo,” said Hideyuki Ishiguro, a senior strategist at Daiwa Securities Co.
“We’re now starting to see a scenario for Switch sales to continue increasing, and for earnings growth.”
Tencent shares didn’t trade in Hong Kong because of a national holiday. Its U.S.-listed ADRs rose less than 1 percent on Thursday after the news.
Shares of other Japanese game publishers like Capcom Co., Square Enix Holdings Co., and Bandai Namco Holdings Inc. also rose more than 3 percent after the reports. All three release software for the Switch, raising the prospect of sales on the mainland.
China is the world’s largest gaming market, but consoles accounted for less than 2 percent of industry revenue in 2018, researcher Newzoo estimated last year.
Microsoft Corp. and Sony Corp. have seen limited demand since releasing their newest consoles on the mainland in 2014 and 2015, as gamers have opted to play free titles on their phones instead of spending hundreds of dollars on dedicated gaming devices.
But the Tencent partnership may put Nintendo on a different footing from its Western rivals, with the prospect of a strong distribution network and the marketing prowess of a household name in China.
Nintendo’s family-friendly series like Zelda and Pokemon may also receive a warmer reception from Beijing regulators, which have hurt PlayStation and Xbox demand by not approving more-violent blockbusters like Grand Theft Auto and Call of Duty.
“Nintendo will be at the mercy of China’s regulators and piracy dealers, but if more people try and enjoy the real thing that’s a plus for the Switch,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co.
The partnership also raises prospects for releasing Nintendo’s mobile games on the mainland or bringing Tencent’s existing mobile titles to the Switch, which offers superior controls over smartphones.
A fan-made video of gamers playing Tencent’s Honour of Kings on the Switch has already made the rounds on Chinese social media sites.
The title is already available for the Switch in Western markets and Japan.
“Although the market for games in China is incredibly huge, the market for dedicated video game platforms is small,” Nintendo President Shuntaro Furukawa told investors in October.
“So even if we were to enter into China, the challenges we would face there certainly would not be simple ones. Even so, I would very much like to try and see how receptive the Chinese market would be to Nintendo IP.”
The selection of the New Super Mario Bros. U Deluxe was puzzling. Originally released in 2012 for the Wii U, the aging title is hardly the ideal vehicle for showcasing the Switch’s hardware.
Still, Morgan Stanley analysts estimated it has a potential to be “a million unit seller per quarter.” No other Nintendo games were mentioned by Guangdong regulators in their statement on Thursday.
The game has been available on the mainland through Nintendo’s unique partnership with Nvidia Corp., but has seen limited demand from Chinese consumers since being released there in 2017.
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