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Nintendo shares slide 6.5% on teaser for its Switch console…but don’t count it out just yet

Nintendo shares tanked 6.5 percent on Friday following a trailer teasing its new Switch console which analysts said underwhelmed investors.

The Nintendo Switch will allow players to play the same game at home or on the go. At home, it sits in a docking station that's connected to the TV, but owners can lift a screen out of the dock, attach controllers to it and make it a portable device to continue with their game on the move.

In a YouTube video showing the device, Nintendo said it will be available from March 2017, but there was no hint of a price. Analysts said that expectation of a new console was already priced in and many of the games teased in the trailer didn't look that different from the titles seen on previous consoles.

"This new product is not a surprise and it was priced into the stock price," Eiji Maeda, analyst at SMBC Nikko Securities Inc, told CNBC by phone on Friday.

"The game content does not look so different from the current Nintendo business. I think it could be a disappointment to users and investors."


‘Many unknowns’

Nintendo has struggled in recent years with the growth of mobile gaming, which has taken users away from its consoles. At the same time, Sony's PlayStation and Microsoft's Xbox have dominated the console market.

Nintendo Switch
Source: Nintendo

The Japanese gaming giant has pushed into mobile games, finding success with the likes of Miitomo and PokemonGo – which was developed by Niantic – and recently announcing a partnership with Apple to bring "Super Mario Run" to iOS.

But the company's core business is still in consoles and there is a lot riding on the Switch, especially since its handheld Wii U console was not a success. At the same time, there is a risk that the Switch could impact sales of its other handheld console called the Nintendo DS.

"There are clearly many unknowns. These include pricing, the technology hardware and performance, the battery life, the amount of third-party support and the inclusion, or not, of VR (virtual reality) compatibility," Neil Campling, head of global TMT research at Northern Trust Capital Markets, wrote in a note on Thursday.

"Then there is the added unknown risk of cannabilization. The DS handheld platform has been a mainstay for Nintendo and this product looks likely to cannabalize the future potential of DS. But then DS was likely to face a grim future as a standalone niche platform given the rise of platform agnostic mobile gaming."


Nintendo shares have rallied this year

It's important to note that despite the dip in Nintendo shares, the stock has been on a tear this year, up over 50 percent year-to-date. The company reports fiscal second-quarter earnings next week with investors watching how its venture into mobile has helped the results.

Despite the initial disappointment reflected in the share price move, Campling has maintained his buy rating on the stock and said Nintendo will be a beneficiary of the growth of mobile gaming.

"It is clearly too early to triumph the Switch but it certainly has promise and will provide the latest opportunity to build on Nintendo's resurgent mobile offering. The success of Pokémon Go, as we expected, appears to have led to renewed confidence in fast tracking this new mobile first strategy from Nintendo," Campling wrote.

"As Nintendo begins to release wholly-owned content onto the global mobile platform Nintendo looks well placed we believe to benefit from the global eGaming bull market. It may be difficult to capture in earnings estimates today such an impact but the biggest driver of price action here and now, in our view, is in the company taking strategic steps to capitalize on the sweet spot of AR (augmented reality) gaming, IP (intellectual property) differentiation and cross-platform media content."