Nintendo’s share price dropped almost 8% on Monday as investors respond to the company’s overly pessimistic outlook for the Switch 2’s second year of sales. The slump took Nintendo’s share price to its lowest point in almost two years, after the company admitted it was feeling the squeeze from memory shortages and other market pressures.
On sales numbers alone the Switch 2 looks like a runaway success, but Nintendo isn’t confident that the console can maintain its momentum, especially with a price hike on the way. In its earnings release, Nintendo said that hardware shortages and the strong first-year sales would result in Switch 2 sales declining in its second year–which would be unusual as consoles are generally expected to gain momentum in their second year on the market.
As Nintendo stock continues its downward slide, Sony is up 10% following an earnings release that showed a drop in sales but a rise in profit. While Sony’s hardware sales are also feeling the impact of memory shortages, strong digital sales are carrying the company’s gaming segment.
Nintendo may be known for its conservative forecasts–it beat its first year estimate of 15 million units sold by almost 5 million–but the company’s pessimism around the Switch 2 has spooked investors. Nintendo’s reliance on hardware sales has already impacted the company’s profit margins, and investors continue to question whether Nintendo has a blockbuster hit on the way to really make the Switch 2 a must-have console.
“The year-on-year decline in game shipment guidance risks signaling that Nintendo lacks confidence in its pipeline,” said Morningstar analyst Kazunori Ito. “Why would Nintendo issue guidance for declining software sales when they should be ramping up user activity in the console’s crucial second year? It’s baffling.”
Switch 2 sales saw a bump after Pokemon Pokopia’s release in March, and sales are also strong this week following the news of an impending price increase. Some analysts believe Nintendo’s forecast for the console is unnecessarily conservative, but others are waiting for news of a major first-party title that will support the Switch 2 ecosystem.