Square Enix embarking on "aggressive multiplatform strategy" as profits drop 70%

Square Enix has released its financials for the fiscal year ended March 31, 2024, with the results largely below what it had previously forecasted.

As a result, the firm is set to implement a brand new strategy going forward, hoping to achieve "stable profit generation" in its digital entertainment segment by 2027.

The numbers

• Net sales: ¥356 billion ($2.28 billion, up 3.8% year-on-year from ¥343 billion)
• Digital entertainment sales: ¥248 billion ($1.59 billion, up 2.6% YoY from ¥245 billion)
• Operating income: ¥32.5 billion ($208 million, down 26.6% YoY from ¥44.3 billion)
• Profit attributable to owners of parent: ¥15 billion ($96.2 million, down 69.7% YoY from ¥49.2 billion)

The financial highlights

Square Enix's digital entertainment sales were ever so slightly up, mainly thanks to its HD Games sub-segment, the firm said. The solid performances of Final Fantasy 16, Final Fantasy Pixel Remaster, Dragon Quest Monsters: The Dark Prince, and Final Fantasy 7 Rebirth saw HD Games sales increase to ¥99.2 billion ($636 million) versus ¥78.5 billion ($503 million) the previous fiscal year.

However, the firm's MMO and Games for Smart Devices/PC Browsers sub-segments both declined year-on-year (11% and 10%, respectively), with the latter in particular seeing new releases underperforming and unable to compensate for weak performances from Square's back catalogue.

The operating losses across its digital entertainment segment were due to higher development cost amortisation and advertising expenses, it continued, as well as "higher content valuation losses versus the previous fiscal year."

Square Enix's results for the year were largely below what it had previously forecasted (for instance, it expected an operating income reaching ¥55 billion and it did ¥32 billion). Back in April, the company had warned investors that its results for the year would be taking a hit due to cancelled projects.

"Operating income, ordinary income, and profit attributable to owners of the parent for the fiscal year ended March 31, 2024 were below the company’s forecasts primarily due to weaker HD games sales than expected in the Digital Entertainment segment and to the recognition of valuation and abandonment losses associated with its content production account following a close examination of the company’s development pipeline," the company said in its financial report.

Looking ahead: The new strategy

As a result of this disappointing financial year, Square Enix will be implementing a new strategy going forward, it announced.

The company's previous strategy included a target to rebuild its portfolio across both the HD Games and Smart Devices segments, streamline said portfolios, and expand its MMO business.

However, it said its journey to "better profitability in HD game development" has been "incomplete", adding: "[We] launched many titles but some failed to live up to profit expectations, especially outsourced titles and some AAA titles."

It also noted a slowdown in SD games, gaps in its management infrastructure, and "cannibalisation of our new titles due to the launch schedule's overlap."

Its new strategy to tackle these challenges is called "Square Enix Reboots, and Awakens" and is a three-year plan targeting long-term growth. The company wants to enhance its productivity and release titles more regularly by "by optimising [its] development footprint," it said. That will involve revamping its organisation, retiring its "business unit-based organisational design."

The company said it will also "aggressively pursue a multiplatform strategy that includes Nintendo platforms, PlayStation, Xbox, and PCs." For its SD segment too, Square said it'll be looking beyond iOS and Android, and at PC launches.

It also intends to step up digital sales in order to diversify its earnings opportunities, and further develop its IP across multiple media and markets.

The company is set to "rebuild its overseas business divisions from the ground up," it added. That will involve optimising costs across its European and American offices via "structural reforms."

Finally, the company said it'll be looking into making "strategic investments" to expand into "additional domains."

For the financial year 2025, Square Enix expects to increase its operating income to ¥40 billion ($256 millon), which would represent a 22.9% boost. However, the company forecast that its sales will continue to decline, down 13% to ¥310 billion ($1.98 billion).

It's also intending to achieve "stable profit generation from the overall DE segment and to generate a consolidated operating margin of 15% in the fiscal year ending March 31, 2027."