Square Enix shares posted worst intraday drop in three years on profit decline and below-expected game sales

Square Enix shares have experienced a huge decline after the company released its report for the first fiscal quarter ended June 30. Analysts were unhappy with a 79% drop in operating profit and lower-than-expected game sales.

Financial results

• According to Square Enix’s latest financial report, its net sales reached ¥85.66 billion ($601 million) in Q1 ended June 30, up 14.4% year-over-year.
• Digital Entertainment, a video game division, accounted for most of the company’s revenue — ¥62.3 billion ($438 million), up 16.4% year-over-year.
• Net sales of HD games amounted to ¥28.9 billion ($203 million), up 133% from the same period last year, followed by mobile/browser titles ($157 million, down 18.3%) and MMO ($78 million, down 22%).
• The growth in the HD games sub-segment was driven by Final Fantasy XVI and FF Pixel Remaster. Mobile titles’ decline was due to weak performance of existing games.

• Operating income was ¥3 billion ($21.7 million), down 78.5% from the same period last year. Digital Entertainment’s operating profit was down 80.6% year-over-year to ¥2.74 billion ($19 million).
• During the quarter, Square Enix sold 7.54 million units of its games, compared to 4.28 million in the same period last year.

What caused Square Enix shares to decline?

• On August 4, Square Enix’s stock closed at ¥6,366 per share. However, on Monday the price dropped to ¥5,561, showing a 15% decline at one point.
• According to Bloomberg, it is the worst intraday drop in almost three years for Square Enix. The company’s shares are currently at their lowest price since May 2022.

On August 7, Square Enix shares reached their lowest level since May 13, 2022, when they traded at ¥5,220 per share

• The 79% drop in operating profit was one of the major factors, on par with a decline in mobile revenue. On top of that, analysts noted that all sub-segments of the Digital Entertainment division were “lower than expected.”
• Bloomberg also reported that Square Enix president Takashi Kiryu told investors during an earnings call that launch sales of Final Fantasy XVI “did not meet the high end of the company’s expectations.”
• FFXVI sold over 3 million in its first six days of launch. Although Square Enix called the results “extremely strong,” the main limiting factor was the PS5 install base.
• According to Kiryu, the company plans to “take steps to boost sales as more people use the PS5.”