Square Enix’s Quality Control & Development Structure Is a Concern for Investors as Stock Continues to Drop
Renowned game developer and publisher Square Enix is facing hardships in the stock market. Following the release of Final Fantasy XVI, the stock price dropped from 7.540 yen on June 20 (the game launched on June 22) to the current value of 5.342.
Even though the game received strong reviews from critics (including our own Kai Tatsumoto, who rated it 9 out of 10), it failed to gain major traction in the sales department. Eventually, Square Enix had to acknowledge that Final Fantasy XVI couldn't meet the 'high end' of the company's sales expectations. Partly to blame is the PlayStation 5 exclusivity, which may be why the publisher is now moving along quickly to bring the game to PC while also strengthening its bond with Microsoft's Xbox.
The performance of Final Fantasy XVI was even more important to Square Enix after the underwhelming launch of Forspoken earlier in 2023. Then there's the fact that the publisher has recently released many smaller games that largely failed to become hits.
Speaking to Bloomberg, Serkan Toto (CEO of Japan game industry consulting firm Kantan Games) said:
Square Enix has problems with their games output, which is kind of conventional. These titles get a 70% rating on Metacritic, are kind of OK, and are just very forgettable.
Tokyo-based developer Michael Prefontaine agreed with that assessment:
Flooding the market with unfinished, bad, or untested games is a bad move. The company has overstretched itself on too many titles without proper oversight.
Bloomberg's sources within Square Enix blamed the over-reliance on producers, who are reportedly given complete control of game projects, sometimes to the detriment of their successes.
Investors have a rather bleak outlook for the company. Macquarie Capital Securities Japan analyst Yijia Zhai shared the following note with investors:
We remain concerned with the company's game development structure and game quality control, which could limit the longer term performance.
UBS Securities analyst Kenji Fukuyama was perhaps even harsher in his comment:
Even if we look five years ahead, there isn’t much that can make investors confident about the company’s future.
It's not all doom and gloom for Square Enix, though. While previous CEO Yosuke Matsuda bet heavily on blockchain integration despite the vehement hatred of gamers, the freshly appointed Chief Executive Officer Takashi Kiryu seems more focused on solving the company's issues. For example, Square Enix will decrease the number of smaller games to focus on its biggest franchises in an effort to improve profitability.
Their next big release in the schedule is Final Fantasy VII Rebirth, due in early 2024 for PlayStation 5, while Dragon Quest XII: The Flames of Fate still doesn't have a release date despite being announced in early 2020.
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