Personally I am a fighting game fan that loves lore and would like a story mode or some sort of unique character interactions that build up that aspect. Maybe a special lobby just for Arms mini games (plus some new ones) as well.

As far as the subject of if or if there should not be a Arms sequel, it shouldn't even be a question, of course there will be a sequel. It is a new IP that sold nearly or over 2 million. Some people are confusing Splatoon, Mario and Zelda numbers for the norm. Most non Mario or Zelda games sell around those numbers or lower, which means a sequel is locked, whether it is the Switch ' s life time or on the next Nintendo hardware is the only question.

Yes. Some people think that Nintendo only cares about stuff that will be the next Mario or Zelda, when that's obviously false. They care about anything that'll make them some form of profit. ARMS made a profit, and Nintendo still regularly promotes the game, so it'll get an in-house sequel sooner or later. None of this outsourcing crap that people think is a good idea. 

ARMS was made by the Mario Kart team, one of Nintendo's core heavyweights who regularly put out games that cross the 10 million mark. Taking up their time and resources for years working on something that will sell in the range of 3 million is just a bad idea.

Not really. Nintendo doesn't actually care about trying to make the next Mario or Zelda. If a game turns a profit and players like it, that's all that matters. Their teams have a lot of creative freedom, especially these days, so if Yabuki and his team want to make a sequel, Nintendo will let him do it. 

It's a bad idea though. Tying up a team that can make 10+ million plus sellers on a game in the 3 million range is just bad business.

Besides Mario Kart, one of the Mario platform games and the Wii Sports titles what games do they do that sell over 10 million? 

Are multiple 10m sellers not enough? The point is, we're not talking about one of their B-teams here, we're talking about one of their core heavyweight teams. What sense does it make to tie them up for the next 3 years making a sequel to a game that did only moderately well when they're capable of making much bigger and better things?

Nintendo games don't need to sell a whole lot to be a success. And Nintendo gives its teams a lot of freedom in making what they want. Whether ARMS gets a sequel or not will depend on what Yabuki wants. 

But it would be a bad call business wise to take one of your strongest teams and tie them down for the next three years making a sequel to a game that did mildly well but failed to achieve breakout success or create a lasting legacy, when they could be working on so many other bigger and more important projects.

Except Nintendo doesn't tell their teams what to make, the teams have to decide that themselves. ARMS will get a sequel if Yabuki wants it, and since the game was profitable, Nintendo will let him do it.