Shares of Square Enix Holdings Co. erased over a full year’s worth of gains, as the company suffered the worst intraday fall in share price in nearly three years, after operating profits fell by 79%.
The gamemaker’s downbeat earnings report, released on Friday, crushed hopes that sales of Final Fantasy XVI would support earnings, causing the stock to fall by as much as 15% in Tokyo on Monday. At midday, shares stood at about ¥5,620, the lowest they have been since May of last year. The Topix Index and MSCI AC Asia Pacific Index both were up by roughly 0.3%.
Three sources said that on a post-earnings call Friday, Square Enix President Takashi Kiryu told analysts that sales of the latest installment of the Final Fantasy series had failed to live up to the the high end of the company’s forecast.
One limiting factor was the slow adoption of Sony Group Corp.’s PlayStation 5, according to Kiryu. He added that now that more people have adopted the PS5 platform, Square Enix would begin to take actions designed to boost sales.
Final Fantasy was first released in 1987 in Japan, and since then the role-playing game series has produced one blockbuster after another, however in later years, the momentum of the series has been faltering. The last iteration of the game, which was exclusive to the PS5 when it was released in June, was a much slower seller than its immediate predecessor.
In a note to investors, Citigroup analyst Junko Yamamura said, “The Final Fantasy franchise’s profitability is weakening and improvements will take time.”
Still, the company was able to maintain its fiscal-year forecasts, and it increased sales by double digits over the first quarter. Of 20 analyst ratings, 10 rate the stock a buy, 10 rate it a hold, and none rate it a sell.
In a note to investors, Jefferies analyst Atul Goyal, who rates the stock a hold, wrote, “All sub-segments within Games were lower than expected. Mobile 1Q revenue (-18% YoY) is a major reason why we have not rated Square Enix as Buy, given the saturation in Japan market and increased competition from the likes of NetEase in Japan.”
