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I think it is going to sell well (2-3 million) but not be a huge success. So far, I'm seeing two target audiences for this: Kids, and really nerdy adults who are also Nintendo fans. The target audience is quite narrow, especially considering the price of the Switch and Labo combined, but it should sell some hardware to the kids market.
I'd prefer if Nintendo released the next Wii Sport instead of it, though. "Switch Sports" would be a perfect fit for the Switch, while Labo is more a labor of love of some weird Nintendo dudes - didn't Miyamoto make dolls before he started developing games? This gives me the same vibe.