Nintendo (NTDOF) shares saw a decline on Friday amidst reports of disappointing sales performance for third-party games on its latest console, widely referred to as the “Switch 2.”
Despite the console achieving impressive initial momentum, reportedly selling a record-breaking 3.5 million units within its first four days, independent developers are finding that sales of their titles on the platform are falling significantly short of expectations. One developer even reported sales being “below our lowest estimates.”
This contrasts sharply with the console’s launch performance for Nintendo’s own first-party titles, such as Mario Kart World and upgraded versions of popular Switch 1 games. These proprietary titles accounted for a dominant 81% of physical game sales during the launch window.
The disparity between first-party and third-party sales presents a potential challenge for Nintendo’s future. If third-party developers struggle to sell their games on the new console, they may reduce or cease support for the platform over time. This could limit the variety of games available, potentially diminishing the console’s overall appeal to a broader consumer base and impacting its long-term success.
Why Are Third-Party Sales Disappointing on the Switch 2?
Several factors appear to be contributing to the underwhelming performance of third-party games on the new Nintendo platform:
The “Game Key Card” Issue: Many third-party publishers are opting to use “Game Key Cards” for physical releases. These are physical cartridges that do not contain the full game data but instead provide a download code to redeem the game from Nintendo’s online store. This approach is often used to lower production costs, particularly for games requiring larger storage capacities. However, these cards fail to satisfy the preferences of either physical collectors (who want the game on the cart) or digital buyers (who prefer direct downloads). The article notes that Cyberpunk 2077 by CD Projekt, one of the best-selling third-party titles on the console, is an exception, being one of the few non-Nintendo games sold physically with the complete game on the cartridge.
Outdated Games at Premium Prices: Another significant factor is the age and pricing of many third-party releases. Numerous titles available on the Switch 2 are older games that have been out for years on other platforms like PC and previous consoles. Despite their age and frequent discounts elsewhere, developers are often charging substantially higher prices on the new Nintendo platform. A notable example is Sega’s Yakuza 0, priced at $50 on the console compared to its standard $20 price on Steam, where it’s often discounted as low as $5. Furthermore, the physical release of Yakuza 0 on the new platform is a Game Key Card, further reducing its perceived value for collectors paying a premium price for an older title.
NTDOF Stock Performance
Nintendo stock (NTDOF) was down approximately 3.65% as of Friday morning following the reports. However, the shares have seen significant positive movement recently, remaining up over 50.73% year-to-date and 72.21% over the past 12 months. For Nintendo to sustain this strong growth trajectory, addressing the challenges faced by third-party developers on the new console will be crucial.
According to Wall Street analysts tracked over the past three months, Nintendo currently holds a “Moderate Buy” consensus rating. This is based on a breakdown of eight Buy, two Hold, and one Sell ratings. The average NTDOF stock price target from these analysts stands at $92.26, suggesting a potential upside of 5.11% from current levels.
