Nintendo has a lot riding on its new game console.
With the launch of Nintendo Switch this Friday, the storied Japanese game maker not only hopes to climb back into the fight for the attention of gamers, but to regain favor with external, third-party publishers. But cautious reviews and an opaque roadmap from company officials have created some unease among investors. (Since Dec. 9, Nintendo shares are down from $32.10 to just under $26.)
The Switch marks more than just a new console generation for the company. It's also the formal end to the company's worst-selling home console of all time. The Wii U, launched in 2012, sold just 13.56 million units worldwide in its time on the market — far short of the company's initial expectations of more than 100 million units.
Nintendo's president, Tatsumi Kimishima, told Japan's Nikkei newspaper that the new device could sell as well as the Wii (which moved more than 100 million units in its lifetime). But if the Switch posts numbers closer to the Wii U, analysts say it could be a big blow.
"The Wii U bought them time to figure out when to launch the Switch, but if you look at Nintendo's overall business model, you have hand-held revenue, mobile gaming revenue, some incremental theme park revenue, future TV and/or film revenue and a significant amount of hardware and software revenue expected from Switch," said P.J. McNealy of Digital World Research. "So if Switch misses, that hurts all of their IP, which hurts all of the parts of their business."
Ben Schachter of Macquarie Capital notes that, ironically, should Switch fail, Nintendo's stock could actually rise, since it could push the company to focus solely on software sales, something a group of investors has been advocating for years.
But few expect the system to flop as majestically as Wii U did. McNealy says the trajectory of Switch should be visible within three months of its launch.
"We're expecting 2 million units at launch," he said. "If they sell out immediately, it's a good early indicator, then the refresh rate in April, May and June bears close watching."