Friday, August 6, 2021

Square Enix Q1 2022 Financial Results

Square Enix released its quarterly financial results yesterday. Due to the company's financial calendar beginning on April 1st, the results are listed as Q1 2022 and not Q2 2021. Confused? I was at first when I opened the pdf file of the presentation. SE also provided a nice press release to accompany the call. I'll reference both documents during the course of this article.

Making comparisons between FY2021 and FY2022 numbers were made a bit more difficult due to three accounting changes Square Enix implemented beginning on 1 April 2021. They include recognition of some revenue from digital content on third-party platforms like Steam. Prior to 1 April, SE only counted the net amount received from a customer. Going forward, SE will count the entire customer payment as revenue. The other big change is when a microtransaction is counted as revenue. Before 1 April, a player had to convert the purchase into an in-game item to count. Now, it is based on the expected duration of the item used. I guess SE had an issue with players not immediately redeeming codes.

One item that might surprise MMORPG players is Square Enix is projecting a down financial year for FY2022. Except for net sales (see the accounting changes) and capital expenditures, all the numbers on the balance sheets are declining. Yes, the Endwalker expansion for Final Fantasy XIV comes out in November, but in 2020 the first of the Final Fantasy VII Remake games launched 10 days into the fiscal year. Expecting Endwalker to pull in the numbers of the FFVII game is probably unrealistic.

Just to drive home the point about the impact of FFVII Remake on sales last year, year-over-year the number of games sold (downloads and physical discs) declined almost 50% in Q1 2022.

When the subject is MMORPGs, Square Enix runs two games, Final Fantasy XI and Final Fantasy XIV. In the quarter running from April to June, the MMO category brought in $105.3 million to SE. The amount represents a year-over-year increase of 14.9%. The increase is partly due to pre-orders for Endwalker beginning in May. On a live stream in July, FFXIV Director & Producer Naoki Yoshida revealed that pre-orders for the expansion were up over 160% compared to Shadowbringers.

Compared to two years ago, the last full quarter before the release of FFXIV: Shadowbringers, MMO revenue is up 31.8%. Looks like the player hype over Shadowbringers translated to Square Enix' bottom line.

The conventional wisdom concerning game companies and the COVID-19 pandemic is that the lockdown restrictions were good for business. But for Square Enix, the lockdowns resulted in some sections of the company losing money.

The final point is just a statistic I personally found amusing. To give a scale of how big Square Enix is, the company's publication operations in charge of book and other sales made $65.3 million in revenue and had an operating income of $29 million. In 2020, the entire EVE IP (EVE Online and EVE Echoes) posted revenue of $63.2 million.

Investors greeted the news warmly, as today Square Enix stock rose to ¥6410, up 9.95% from the previous day's close of 5830.

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