Nintendo's sharp drop leaves investors scrambling for answers

Nintendo suffered its biggest two-day drop in 18 months amid concerns about a lack of positive announcements for an upcoming gaming conference and worries about its attempts to develop online games for its Switch game console.

Shares tumbled as much as 6 per cent on Monday after losing 4 per cent on Friday, the largest two-day decline since December 2016. The drop left the stock at its lowest level since December on an intraday basis and at its biggest discount versus Wall Street targets in nearly a decade.

Analysts reported getting dozens of inquiries on Monday 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.

“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 this morning. “The other question is whether their network infrastructure is really ready to cater to online gaming.”

Volatility in Nintendo shares has jumped since April as investors try to gauge whether the company can maintain the Switch’s strong sales-momentum in its second year. Last week’s unveiling of new Pokemon games sent shares surging 6.1 per cent over Wednesday and Thursday, only to drop sharply over the following two days.