A major shareholder in Square Enix has released a 100-page document criticising the company for its poor sales and urging for a “fundamental reassessment of the medium-term management plan”.
3D Investment Partners is the third largest shareholder in Square Enix, with a 14.36 percent stake it began amassing back in April. Now the Singapore-based investment firm has gone public with its critique of the company, after reportedly being dissatisfied with Square Enix CEO Takashi Kiryu’s response to its analysis back in October (thanks Automaton).
The report states Square Enix is a “preeminent Japanese game developer” that “possesses globally renowned game titles” including Final Fantasy and Dragon Quest. However, it’s seen a “significant deterioration in earning power” and the investment firm believes the current management plan is insufficient in revitalising the company.
That management plan was shared by Square Enix last year, as it announced it would be “aggressively pursuing” a multiplatform strategy for its games, aiming to “diversify earnings opportunities” following a review of its development system and the abandonment of £112m of in-development projects.
3D Investment Partners has argued Square Enix has stagnating profit margins. Games sales have reduced and margins have declined, which the investor attributes to platform exclusivity, poor revenue return on advertising expenditures, low sales of its legacy games, and excessive development costs, among many factors.
The document also goes to great lengths to compare Square Enix with key Japanese competitors like Capcom and Konami to highlight its lack of success, while claiming Square Enix relies too much on the domestic Japanese market and is failing to grow overseas.
It should be noted Square Enix is addressing some of these issues already – Final Fantasy 16 made its way to Xbox this year following PlayStation exclusivity, while the Final Fantasy 7 Remake trilogy will be coming to both Xbox and Switch 2 in future.
What’s more, 3D Investment Partners is here an activist investor stirring up outside support. It offers little in the way of tangible advice, beyond picking holes in Square Enix’s strategy, seemingly with an agenda to oust Kiryu as CEO. It’s unclear where sales data in the report has been taken from, while sentiment against the likes of Dragon Quest 3 HD-2D Remake (which was certainly successful) and Final Fantasy 16 (which certainly has a fanbase) have been hand-picked from Metacritic to highlight harsh criticism.
Still, the investment company claims Square Enix’s current “Reboots” strategy justifies its lacklustre performance and fails to “articulate a forward-looking vision”. Further, it highlights a “lack of synergy with non-gaming”, stating its cross-media strategy with films, anime and the like is lagging, as are merchandise sales. Additionally, Square Enix’s arcade and publishing (manga) business are said to be significantly underperforming.
The report comes at a critical time for Square Enix. The company admitted last year both Final Fantasy 16 and Final Fantasy 7 Rebirth initially failed to meet sales expectations. Its earnings report in May this year showed a year-on-year drop in sales of its single player games, although profit did increase due to strong sales of Dragon Quest 3 HD-2D Remake.
Then, in November, Square Enix announced it wants generative AI to do 70 percent of QA work by 2027. This announcement came alongside mass layoffs as the company’s “fundamental restructuring” plan pulled resources from “overseas” development – an unknown number of US employees are at risk, while reportedly 137 jobs are at risk in the UK.
