Square Enix profits dip 28% in new yearly earnings

Square Enix's recent performance shows the publisher is ramping up for a big future...but it probably won't happen this year.

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Square Enix today announced its earnings for the fiscal year ended March 31, 2019, showing dips in operating income and profits while total expenditures rose by 20%. Key metrics show a sizable jump in game sales thanks to Kingdom Hearts III's massive acclaim, prompting total net sales revenues to rise 8.2% YoY to 271 billion yen ($2.44 billion). Earnings slips offset this favorable performance, however.

Other metrics failed to rise during the year. Operating income for the FY2018 period dropped a big 35% YoY to 24.5 billion yen ($220.91 million), and Square Enix notes this dip is caused by larger investment in the year's under-performing games. Total profits sit at 18.4 billion yen ($165.91 million), dropping almost 30% from last year's.

Square Enix FY2018 earnings at-a-glance

• Net sales - 271 billion yen ($2.44 billion), up 8.2% YoY
• Operating income - 24.5 billion yen ($220.91 million), down 35% YoY
• Total profit - 18.4 billion yen ($165.91 million) down 28.6% YoY
• Capital expenditures - 9.5 billion yen ($85.66 million), up 20% YoY

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Square Enix's FY2018 performance shows big drops in profits, despite strong sales of games like Kingdom Hearts III.

Its digital entertainments segment made up 75% of net sales in the fiscal year and game sales saw a nice uptick. Square Enix sold 26.55 million copies of its games in FY2018, up 11.8% year-over-year. Most of these games were sold in North America and Europe: the region made up 77% of sales during the year.

As we noted above, Kingdom Hearts III was the main driver for these sales. Other games released in the year like Shadow of the Tomb Raider and Just Cause 4 didn't sell as well as Square Enix had hoped.

This current fiscal year isn't expected to fare any better.

The company forecasts even more drops in operating income and profits for FY2019 (ending March 31, 2020), strongly hinting big marquee games like the Final Fantasy VII: Remake won't launch during the fiscal year. Total game sales are also expected to drop to 18.27 million copies, representing a 31% dive.

Square Enix FY2019 earnings forecast

• Net sales - 270 billion yen ($2.43 billion yen), down 0.36% YoY
• Operating income - 24 billion yen ($216.41 million), down 2% YoY
• Total profit - 16.8 billion yen ($151.48 million), down 8.6% YoY
• Capital expenditures - 12.8 billion yen ($115.41 million), up 34.7% YoY

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Square Enix's forecast for the current fiscal year (FY2019) show further dips in earnings.

But the next year is set to deliver astronomical earnings.

In the fiscal year ending March 31, 2021, Square Enix predicts huge spikes in net sales revenue and operating income.

The publisher expects to make up to 400 billion yen ($3.6 billion) in net sales in FY2020, up a whopping 48% year-over-year, and up to 50 billion yen in operating profit ($450.8 million). This strongly indicates its biggest games will release during this timeline, meaning the Final Fantasy VII: Remake and upcoming Avengers game could be PlayStation 5 launch games.

Here's what Square Enix said in regards to its FY2020 earnings forecast: "Targeting net sales of ¥300‐400 billion and operating income of ¥40‐50 billion. Looking for Digital Entertainment segment to drive sales and income growth."

Square Enix is gearing up for a big future, but to get there it'll have to hit a few speed bumps and keep investing strongly in current projects.