Square-Enix Sees Profits Sink

Gamespot reports that RPG maker Square-Enix reported an almost 70% decline in net profit for most of last year. From the article: "Square Enix attributed most of its financial difficulties to its primary business--games. The company had a profitable nine months, releasing a number of hits: Kingdom Hearts II, which shipped 1.1 million units in Japan since its release in December; Romancing SaGa for the PS2, which shipped 500,000 units (Japan: 450,000, USA: 50,000); and Dragon Quest VIII, which shipped 430,000 units in North America. However, the numbers couldn't match those of the previous year, when Dragon Quest VIII shipped 3 million units in its first three days of release in Japan. The segment's sales fell 43.3 percent to 21.2 billion yen ($180 million), and its operating income plunged 95.1 percent to 974 million yen ($8.28 million)."

Comments

Normal Year is a Headline?

[Larkvi]

I have never really understood why it is news that a company that has had a profitable year wasn't as profitable as a previous blockbuster year. Last year, with greater profits, was news; this year just seems normal. Would anyone have a headline saying "Square-Enix has nice, but unexceptional, year"?

Re:Normal Year is a Headline?

[mlyle]

This is because the ideal value of an equity is the value of the company's future cash flows. The dividend-discount valuation models that are used assume a given rate of growth for a certain amount of time before stagnation, and those future cash flows are discounted by a standard 'cost of capital'. A decline in profit indicates that the company may be near the stagnation point, and the value of those future dividends is called greatly into question.

A profitable year isn't enough. Capital markets demand of a growth stock ever-more profitable years. There is room for companies that are stable and not growing much, but they tend to not be valued at a very high multiple over their yearly earnings.

Damn them.

[Kesch]

First they tried to entice me to buy Dragon Quest VIII with the FFXII demo. Now they are guilting me into buying it.

Re:Damn them.

[AdamWeeden]

Buy it for DQ8. The FF12 demo isn't worth it. I was extremely disappointed.

I agree, but from a slightly different standpoint. I bought DQ8, half because it looked at least interesting, and half because I wanted to play the FF12 demo. While I wouldn't say I was dispappointed by the demo, it;s definately NOT a reason to buy the game, as it's MAYBE (at most) a half hour to an hour long. DQ8 however is turning out to be a VERY pleasant surprise, and I am enjoying it a lot.

Did you play final fantasy x2?

[queen of everything]

I haven't bought a square game since Final Fantasy X2, so I have contributed to their decline I guess. But did you play it? I have played Final Fantasy games for as long as I can remember and I loved FFX. FFX2 was SO lame! Dance fighting with different outfits? I'm a girl and I don't even think that is fun. Hopefully their newer games are better, I haven't gotten into an RPG in a while (I tend to play them a little too much once I start) so I don't know. But if any of them are like FFX2, then I understand why they aren't making as much money!

Re:Dragon Quest 8

[Tickenest]

Well, I won't get all fanboy on you, but I really have no complaints about Dragon Quest VIII. I won't say it's the perfect game, but it has no major flaws as far as I can tell and is just fun. There is lots to do outside of the main quest, the game itself is beautiful. I'll admit that I've always been a fan of the DQ/DW games (even played both SNES version with translation patches), but I really can't find fault with this one. Some people might think that gold is in too short a supply, but I think it just forces more strategic choices instead of "buy the most super awesome equipment for everyone ever at each town" way of thinking.

Hopefully not pinning hopes on FFXII

[the_demiurge]

My brother got a copy of Dragon Warrior VIII for Christmas, and I had the opportunity to try out the FFXII demo.

I'm glad I did. The battle system was one of the most boring I've ever played in an RPG. The game practically plays itself. In the 'Boss Battle' in the second mission, I won without giving any orders to my characters at all except for using one ether when I ran out of magic points. Your allies heal themselves and you and there seemed to be little point in casting magic spells yourself except to heal.
I realize that Final Fantasy has always been a game with changing mechanics and battle systems, but making the battle system as simple as possible is not a step in the right direction.

So maybe the high distribution of DW VIII will contribute to the downturn in sales in more ways than one...

No surprise

[discoalucardx]

They haven't had any really good titles for awhile. Radiata Stories wasn't that great, Musashi wasn't that hot either, and I'm at a loss to remember anything else they did. They haven't had any Final Fantasies for awhile, and Dragon Quest isn't exactly a household name in the US, although apparently it did fairly well for itself. I'm guessing their portable offerings made them money though. (like Final Fantasy IV). With Kingdom Hearts II out in America this year, the upcoming Final Fantasy XII (hopefully out here before the end of 2006), and a bigger portable lineup (Children of Mana, FF3 DS, FF5 and 6 GBA remakes), they should probably see a better year.

Re:Familiarity

[buffer-overflowed]

Very wrong. Dragon Quest 1-4 were put out over here on the NES under the Dragon Warrior brand. We also got Dragon Quest 7 for the Playstation. The only ones that really got skipped were the SNES ones(5 and 6).

Fun Fact, IIRC Dragon Warrior 4 holds the distinction of being the largest NES ROM.

Shrug, it didn't sell well here because most PS2 gamers are nooblets.

Background info.

[bmajik]

from Wikipedia

The series is extremely popular in Japan. Following the release of Dragon Quest III in 1988, the Japanese Diet requested that Enix only release new installments of the Dragon Quest series on Sundays or holidays, to prevent children from skipping school to wait in line for the latest Dragon Quest title.



Dragon Quest is such a cultural phenomenon in Japan that there are live-action ballets, musical concerts, and audio CDs based on the Dragon Quest universe.[3] The London Philharmonic Orchestra has performed for several Dragon Quest music albums.[4]

Still seem ridiculous for one game to have that big of an effect on profits? If it does badly, that represents a significant cultural shift for the country of Japan

Re:Background info.

[_xeno_]

I'd buy that IF Square-Enix were a small game manufactorer. They aren't. They're a large game manufactorer. If one game, regardless of how popular, is enough to bump their profits by 300% for one year, they've got some serious issues.

And if you read the article, they're basically down in all sections, not just the section that produced DragonQuest VIII. For a company like Valve, where they don't make a lot of games, a single popular game should bump their profits by 300%. For a company like Square-Enix, where they make a lot of different games, having a single title be that important to their bottom line cannot be a good thing.

Especially because if you read the article, sales are up - but profits fell a massive amount.