Breakingviews - Nintendo can flex its pricing power with Switch 2

Reuters

2 days ago

HONG KONG, Aug 4 (Reuters Breakingviews) - It's hard to imagine a better start for Nintendo's (7974.T), opens new tab new console: the Switch 2, a direct follow-up to its famously successful Switch, sold 5.8 million units during the first fiscal quarter, a record launch for the industry, per Jefferies. The company also moved 5.6 million units of launch title Mario Kart World, according to its earnings update on Friday, nearly one game sold for every console moved despite concerns that the game's unusually high price of $80 would prove too much.
That sales ratio is flattered by Nintendo making the game a pack-in with the console—its most expensive ever, at $450—but underscores the willingness of fans to shell out more cash for both. The hardware for the American market is shipped from Vietnam, yet analysts at JPMorgan estimate that the Donald Trump administration's decision to double tariffs on the country to 20% will have little effect on earnings until next year. Little wonder shares jumped almost 6% on Monday.
The $110 billion company nonetheless struck a typically conservative tone in its latest guidance, maintaining its sales forecast of just 15 million Switch 2 units for the current financial year even as it noted tariffs had 'no significant impact'. The more meaningful move came in a separate announcement of price rises for models of the original Switch averaging 14%, which did not mention tariffs but warned price adjustments for the sequel console 'may be necessary in the future'.
An equivalent 14% hike to the Switch 2's sticker price would cost consumers more than $510 a pop — well over rival Sony's more powerful PlayStation 5, whose disc-free model also retails for $450. What Sony does not have are entries in longstanding series such as Super Mario, The Legend of Zelda and Pokemon, which have driven steady sales of the Kyoto-based games maker's consoles for decades. High review scores for the Switch 2-exclusive Donkey Kong Bananza also bode well for sales in the second half.
Moreover, Sony will lack a blockbuster contender for the holiday season thanks to the delay of Grand Theft Auto VI, which had been expected to boost PS5 sales this year. That gives Nintendo an opening to make gains at the margins, yet there is a risk it could overplay its hand if it raises prices too high too quickly. A recession in the U.S., which accounts for 40% of net sales, could also dent earnings. Even so, the bumper sales so far make a solid case for the company to charge gamers more for its wares, and sooner than later.
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