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Xenoblade Chronicles 2 was also a much cheaper game that also had a sizable audience pay for DLC, and was practically made by a skeleton crew. ARMS was probably much more expensive due to the online infrastructure alone. Xenoblade 2 isn't costing Nintendo money right now to upkeep. Right now, Nintendo is paying for server maintenance and upkeep for the very miniscule community that is still playing the game. In this sense, ARMS is likely a complete failure. Retention is the #1 most important thing for an online game, and ARMS just doesn't have it.It sold more than Xenoblade Chronicles 2, and that's getting a sequel. Sorry, I don't think "it didn't sell well" is a valid argument here.
That's not to say that they can't try again, and make it more appealing. But this is likely the thought process behind Nintendo.