For the latest quarter ending 12/31/22, Square Enix (9684.T-JP: Tokyo) (OTC: SQNNY) saw revenue decline 12% to ¥92,224 million (about $800 million). Mobile game sales were down 25%, HD game sales were up 10%, and MMO game sales were down 41%. For the nine-month period ending 12/31/22, sales were down 7%, however, profit was up 16% to ¥46,397 million.
Analysis
Square Enix has a lot of moving parts. Its video game division “Digital Entertainment” accounts for about 75% of its revenue. Other divisions include Amusement (arcade operations), Publication and Merchandising.
In the video game space, Square Enix has three different product categories: HD games (high-end content for console and PC), MMO games led by Final Fantasy XIV and Dragon Quest X, and Games for Smart Devices/PC Browser (aka mobile games).
Surprisingly, HD game sales showed an increase. In early 2022, the Eidos/Crystal Dynamics division was sold to Embracer and that included several products in that category. However, Square Enix was one of the few companies that released a decent lineup in the second half of 2022.
The big concern with Square Enix is the company may be trying to do too much. This includes a big focus on blockchain games. However, Square has a diversified product mix and an evenly divided base between mobile products and high-end games. High-end products do well in Western markets. Square Enix generates about $1 billion a year from North America and Europe.
Square Enix remains one of the initial stocks in the DFC Intelligence Video Game Stock Portfolio. DFC believes the company is difficult for investors to fully understand because of its diverse catalog and a product lineup that has appeal across multiple categories and regions. The company generates about 60% of its revenue in Japan, but it has significant room for global growth.
