Games company suffer ‘shocking’ share drop over two days
TOKYO: Nintendo Co suffered its biggest two-day drop in 18 months, befuddling analysts and sending investors scrambling to explain the sell-off.
Shares tumbled 6.3% yesterday after losing 4% on Friday, the largest two-day decline since December 2016. The drop left the stock at its lowest level since September and at its biggest discount versus Wall Street targets in nearly a decade.
Analysts reported getting dozens of inquiries yesterday from hedge funds and investors eager to understand the sell-off.
Theories ranged from falling expectations for positive surprises at next week’s Electronic Entertainment Expo conference, known as E3, to troubles with Nintendo’s online games.
Many also pointed to quantitative traders selling on weakening momentum, although short-interest remained low by historic standards.
“What is shocking is that recently there has been a lot of good news related to Nintendo,” Jefferies Group analyst Atul Goyal wrote in a report to clients, blaming the drop on traders who rely on technical chart analysis to make investment decisions. “Nevertheless, if chartists are giving a diametrically opposite view, we take this as an opportunity to reassess and review.”
Among the key technical signals, the stock fell through its 200-day moving average last month.
That’s the first time it has traded below that indicator in about two years.
Volatility in Nintendo shares has jumped since April as investors try to gauge whether the company can maintain the sales momentum of its popular Switch game console into a second year.
Last week’s unveiling of new Pokemon games sent shares surging 6.1% over Wednesday and Thursday, only to drop sharply over the following two days. Volume was heavy yesterday, with Nintendo’s alone accounting for about 7% of Tokyo’s US$22bil in stock turnover.
Rumours that the world’s most popular game, Fortnite, will be unveiled for the Switch at E3 have already been digested by the market, analysts said. With Pokemon announced last week and the highly-anticipated Super Smash Bros sequel already confirmed in March, that left investors anticipating Nintendo would not have additional news for its E3 broadcast next week.
“The market is probably selling shares ahead of E3 because people are concerned Nintendo doesn’t have a pipeline that will wow investors to a point where analysts will have to raise earnings targets again,” said Amir Anvarzadeh, a senior strategist at Asymmetric Advisors in Singapore, who said he got three calls from investors about Nintendo yesterday morning. “The other question is whether their network infrastructure is really ready to cater to online gaming.”
Over the weekend, Nintendo released a free demo of the upcoming title Mario Tennis Aces.
Frustrated gamers took to social media to gripe that the game was unplayable due to connection issues, including delays. That followed prior complaints about Splatoon 2, an online-focused game which some players said made it unnecessarily difficult to play together with friends or limiting which game modes can be accessed at certain hours.
Nintendo is planning to launch its paid online network in September, with Morgan Stanley MUFG Securities Co analysts estimating the service will bring in 19.2 billion yen (US$175mil) in operating profit for the fiscal year ending March 2020. — Bloomberg
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