Square Enix Holdings 3Q FY2019/3 Financial Results Briefing

Square Enix Holdings reported a challenging financial performance for the nine-month period ending December 31, 2018. The company recorded net sales of ¥179 billion, representing a 4.8% year-over-year decline, while operating income fell significantly by 65.3% to ¥11.7 billion. These results were primarily driven by underperformance in the Digital Entertainment segment, where high development amortization costs and increased advertising expenditures for major HD titles failed to be offset by initial sales volumes.

The Digital Entertainment segment, the company’s core business, saw net sales drop to ¥130.4 billion. While titles such as Shadow of the Tomb Raider and Just Cause 4 contributed to revenue, the latter underperformed against launch expectations. Additionally, the Games for Smart Devices/PC Browsers sub-segment struggled as new releases failed to meet performance targets, and the MMO sub-segment faced difficult year-over-year comparisons due to the absence of major expansion packs. Conversely, the Publication segment showed growth, bolstered by strong digital comic sales, while the Amusement segment experienced increased net sales despite a decline in operating income due to machine replacement costs.

Management attributed the profit decline to a highly competitive market landscape and the necessity of front-loading advertising costs. To improve future profitability and operational efficiency, the company plans to consolidate its eleven existing business divisions into four units starting in fiscal year 2020. Despite the third-quarter shortfall, leadership maintained its full-year guidance, expressing optimism for the fourth quarter driven by the release of Kingdom Hearts III and the strong performance of Romancing SaGA Re;universe. The company remains committed to its medium-term operating income target of ¥40–50 billion for the upcoming fiscal year.