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What Investors Need to Know About Nintendo's Switch Console


After first unveiling its upcoming console-handheld hybrid with a promotional reel in October, Nintendo 's(NASDAQOTH: NTDOY) Jan. 12 press conference gave the world a deeper look at its upcoming video game platform. The new system will hit store shelves on March 3 and carry a $300 price, with a new entry in the Legend of Zelda series serving as the system's key launch game.


The Switch launch will lean heavily on the appeal of the latest release; Image source: Nintendo.

The Switch launch will lean heavily on the appeal of the latest Zelda release; Image source: Nintendo.

The fact that Electronic Arts (NASDAQ: EA) and Take-Two Interactive (NASDAQ: TTWO) will not have ports of their most recent sports game releases ready for the Switch's debut is a worrying sign for the platform's future. EA will bring its upcoming version of FIFA to the platform, and the next installment in Take-Two's NBA 2K series is slated to hit the platform, but the absence of the previous year's installment could be an indication of low confidence. The absence of an announced version of EA's Madden NFL is also troubling.

The Switch is built around NVIDIA 's Tegra architecture, which was said to make porting games to the system easier than on previous Nintendo platforms. However, it appears that the system might not have the hardware power needed to facilitate smooth ports of more graphically intensive games. Big properties including Call of Duty , GrandTheft Auto , and Battlefield could once again skip Nintendo's hardware -- setting up a repeat of a dynamic that has hurt the company in previous console cycles.

Nintendo makes progress online, but problem points remain

While it's generating backlash from some video game fans, the best news from the Switch event for investors is that the new system will require a paid subscription to play online after an initial post-launch trial period. The new online system should be a profitable revenue stream for Nintendo and also give the company more resources and incentive to deliver a solid online experience that's closer in line with what Microsoft and Sony are offering in the console space.

The quality of the experience and the Switch's broader user interface as it relates to online play and other features remain unknown, and there are reasons for a cautious outlook even as the shift to a paid service seems to be a move in the right direction. Voice chat, for instance, will require the use of a smartphone and an app from the company -- an odd decision that suggests Nintendo has not completely done away with its historically idiosyncratic online philosophy.

The Switch probably won't be GameStop's savior

GameStop stock tumbled 8% between Jan. 12 and Jan. 13, and while most of the drop is attributable to a 16% slump in holiday-period sales reported by the company, a disappointing showing for the Switch is also a possible contributor. GameStop is hoping that the Switch's focus on physical media and the fact that Nintendo's customer base is traditionally less engaged in digital sales will help to counteract negative effects from the broader industry transition to digital distribution.

Signs that the Switch will not receive robust third-party support suggest that benefits for the gaming retailer will be largely limited to hardware and first-party software sales. Nintendo has an updated version of Mario Kart 8 , a sequel to Splatoon , and Super Mario Odyssey on deck for release in 2017, but the currently announced lineup and other concerns surrounding the Switch's future suggest the new console won't have the impact GameStop is seeking.

For Nintendo investors, the recent media event for the Switch adds increased significance to the company's next moves in mobile, as the platform looks to be an underdog heading into its release.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Keith Noonan owns shares of Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of and recommends Activision Blizzard, Nvidia, and Take-Two Interactive. The Motley Fool has the following options: short April 2017 $28 puts on GameStop. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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