The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to add dropped comma in third paragraph.
By Hudson Lockett
HONG KONG, June 6 (Reuters Breakingviews) - Sometimes a company is very good at what it does, and what Nintendo 7974.T does is video games. Little surprise, then, that long lines of hardcore fans turned out to ensure the new Switch 2 console from the Kyoto-based company sold out when in-store sales kicked off on Thursday.
The follow-up to Nintendo’s first Switch — which has shipped out more than 150 million units since launching in 2017 — will probably remain in short supply for some time despite a high price tag of almost $450, some 50% more than the previous model.
Even so, traders may be getting ahead of themselves. Shares in the house that Super Mario built had already rallied about 30% in the year, ahead of the recent launch, having also fully recovered from a more than 10% tumble in early April, when Nintendo was forced to delay the start of pre-orders in the U.S. due to President Donald Trump’s tariffs. That is dramatically different from the lead-up to the release of the first Switch, which, coming off the flop of Nintendo’s previous Wii U console, saw the stock little moved.
In the face of trade wars and economic uncertainty, Nintendo has understandably offered a cautious Switch 2 sales forecast of 15 million units for the current fiscal year. That's more conservative than analysts at Jefferies, who are pencilling in shipments of 17 million and have raised their target price for the company to 20,220 yen ($140.61) — a 71% premium to Thursday’s close and well above a median target price of 12,500 yen from Visible Alpha. They also boldly suggest that $108 billion Nintendo could “in 2-3 years” surpass Toyota Motor 7203.T, currently worth $293 billion, to become Japan’s most valuable listed company.
There is reason to be optimistic about Nintendo’s outlook. President Shuntaro Furukawa has pledged to try and beat its official forecast, and has done well in capitalising more on the game maker’s world-famous franchises, including Super Mario and The Legend of Zelda, through offerings at the box office and theme parks.
But the stock's current forward price-to-earnings multiple of 37 times is already well up from a five-year average of 20 and is more than double the industry median of 15, per LSEG. Nintendo may not be feeding into the hype, but any wobble will test investors' enthusiasm.
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CONTEXT NEWS
Japan's Nintendo launched its Switch 2 video game console on June 6 with a nearly $450 price tag as the company seeks to follow up on the success of the original Switch, which has sold more than 150 million units worldwide since its 2017 release.
Nintendo in May forecast sales of 15 million Switch 2 units during the current financial year. President Shuntaro Furukawa said the company will strengthen production capacity to respond to strong demand and focus on sales promotion in an effort to exceed the forecast.
Nintendo shares surge ahead of Switch 2 launch https://www.reuters.com/graphics/BRV-BRV/zdvxameyjpx/chart.png
(Editing by Robyn Mak; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))
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