Nintendo Switch: Why Investors Panic

A wave of panic has been blowing over Nintendo shares for a few months. After reaching highs around March, Nintendo shares fell quickly, and recently the pace has accelerated, so up to 5% loss in a single day. In total, they have lost 34% since March.

But what's going on?

We were supposed to witness the rebirth of Nintendo, a blessed time, following the great success of Pokémon GO ( which caused a huge leap in equities in the summer of 2016), and the launch of the Switch (which has not lost popularity since its release). In 2017, we saw the birth of two of the best games ever produced by Nintendo, The Legend of Zelda: Breath of the Wild and Super Mario Odyssey … But it seems that investors are not satisfied.

Investors would not have been impressed by Nintendo's intervention at Nintendo's E3, which featured Super Smash Bros. Ultimate and Let's Go Pikachu / Eevee as the two major releases planned for autumn 2018.

This recent panic has prompted Nintendo to come forward and rebadure investors, telling them that the entire line-up of games to come in 2018 had not been announced, and that 20 million switches should be sold as planned for the year 2018.

In their defense, investors are not always the most rational actors. Nintendo shares have skyrocketed with the success of Pokémon GO, but Nintendo is reaping only a fraction of revenues a little, since the company only accounts for one-third of The Pokémon Company, and the game was made by Niantic. However, this did not stop investors from tripling their shares, in a kind of unbridled enthusiasm.

Here we witness the very opposite. Nintendo still plans to reach its 20 million targets – bringing the Switch to 37 million copies sold in just two years. A phenomenal pace, even though sales have slowed somewhat in recent months.

Smash Bros. is a "big" upcoming game for the Switch, which could only be overshadowed by a series of Pokémon games, but that does not really seem to rebadure investors. One of the only things that Nintendo could do to boost its sales would be to launch a new Mario Kart, but they have to keep some big hits for years to come. Moreover, it has already been announced that a new Pokémon game (Gen 8) will be released on the Switch in 2019.

Many have become Nintendo's skeptics in recent years. But the Switch has been very little criticized, and rather well adopted. Investors here seem to be worrying for no real reason. Unless Nintendo is not able to achieve its sales objectives, which does not seem to be the case, there is no reason to worry, especially with two upcoming high-level games, and others that have not even been announced.

Nintendo will probably continue to fight this kind of concern as long as the company is not one of the top three in terms of sales, notably missing important outlets such as the launch. of Monster Hunter World and Far Cry 5 in the spring. And yet, on this side, the situation is improving since Nintendo recently had access to the most popular game in the world and Fortnite, and many are the days that have loved to play on their Switch. So much so that it could lead to a noticeable increase in sales, because of the portability of this console.

Hard to know and understand what is currently going on in the minds of investors so that stocks experience such fall, but that does not seem to be rational at all. Nintendo has been, and continues to be, in an excellent position, and it's hard to imagine that the trend will reverse in the coming months, with the success of the Switch.