SQUARE ENIX HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥133.90B
• Operating Income: ¥27.28B
• Net Income: ¥11.76B
• EPS: ¥27.89

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Square Enix Holdings reported FY2026 Q2 consolidated results under JGAAP showing a mixed but resilient profile: revenue declined 15.0% year over year to ¥133.9bn while operating income rose 28.8% to ¥27.3bn, indicating effective cost control and/or a favorable mix shift toward higher-margin content. Gross profit margin is reported at a high 61.6%, and operating margin stands at roughly 20.4%, pointing to improved operating efficiency despite topline pressure. Ordinary income reached ¥28.6bn, and net income declined 14.5% YoY to ¥10.1bn, suggesting non-operating items and/or below-the-line factors weighed on final earnings. The DuPont framework indicates a net profit margin of 7.51%, asset turnover of 0.327x, and financial leverage of 1.23x, resulting in an ROE of 3.01%, which is modest relative to Japanese content peers. Liquidity appears exceptionally strong with a current ratio of 511.5% and quick ratio of 504.3%, backed by current assets of ¥344.5bn versus current liabilities of ¥67.4bn, and working capital of ¥277.2bn. Total equity is ¥333.8bn against total assets of ¥409.7bn, implying an equity ratio of roughly 81.5% by calculation, even though the disclosed equity ratio field shows 0.0% (likely not updated in the XBRL). Interest expense is minimal at ¥66m and interest coverage exceeds 400x, reflecting very low financial risk. Reported cash flow figures are not disclosed (all zeros), limiting direct assessment of operating cash conversion and free cash flow in this period. Dividend per share and share counts are also undisclosed here; EPS is provided at ¥27.89. The revenue decline alongside stronger operating income suggests mix optimization, disciplined marketing/R&D spend, or fewer one-off costs, potentially including lower impairment versus the prior year. Net income pressure despite higher operating profit likely stems from non-operating losses, valuation effects, FX, or increases in minority interests—areas to monitor as disclosures become available. Asset turnover remains low (0.327x), consistent with a cash-rich, IP-centric balance sheet; improving ROE will likely require stronger earnings growth and/or a clearer capital allocation pathway. The high gross and operating margins underscore the earnings power of digital distribution and catalog sales, but the hit-driven nature of AAA titles continues to drive volatility. Data gaps—particularly cash flow and dividends—necessitate caution in drawing firm conclusions on cash generation and payout capacity for this interim period.

Profitability Analysis

ROE of 3.01% decomposes into 7.51% net margin × 0.327x asset turnover × 1.23x leverage, highlighting earnings softness and low asset turnover as primary constraints rather than balance-sheet leverage. Operating margin is approximately 20.4% (¥27.3bn OI on ¥133.9bn revenue), a notable expansion versus the prior year given revenue contraction, indicating positive operating leverage from cost efficiencies and/or a richer mix. Gross margin is reported at 61.6%, consistent with a high digital mix and IP-driven model; however, cost of sales (¥75.1bn) does not align arithmetically with reported gross profit (¥82.5bn), so we rely on the provided gross margin/gross profit figures for margin quality assessment. Interest burden is negligible (¥66m), and ordinary income (¥28.6bn) slightly exceeded operating income, suggesting some non-operating gains in aggregate, though net income fell YoY due to below-the-line factors. The spread between operating margin (~20.4%) and net margin (7.51%) underscores non-operating items and taxes as significant drags. Operating leverage appears favorable this half, as lower revenue still produced higher operating profit—likely reflecting tighter SG&A, efficient marketing spend, and potential reductions in amortization/impairments versus the prior year. Sustaining this profile will depend on the release slate cadence and avoidance of large impairments typical in AAA development cycles.

Growth Assessment

Revenue declined 15.0% YoY to ¥133.9bn, indicating a softer release slate or slower monetization versus the prior-year comp. Despite the decline, operating income rose 28.8% YoY to ¥27.3bn, implying improved mix (catalog, digital, higher-margin platforms) and/or disciplined spending. Net income decreased 14.5% YoY to ¥10.1bn, likely due to non-operating and/or tax/minority interest effects; clearer drivers will require detailed notes not included here. The net margin of 7.51% remains healthy but below operating margin, reinforcing that below-the-line items constrained bottom-line growth. Asset turnover at 0.327x signals a capital-light but cash-heavy balance sheet; growth in ROE will hinge more on profit expansion than leverage. Sustainability of the operating profit improvement will depend on the pipeline (e.g., major franchise launches, live service performance) and the extent to which cost efficiencies are structural. Given the high gross margin, incremental revenue from new releases typically scales well; however, this is offset by the hit-driven risk inherent in AAA development. Outlook hinges on upcoming title timing and reception, digital monetization, and geographic/platform mix; FX could be a tailwind or headwind depending on USD/EUR trends against JPY.

Financial Health

Liquidity is strong: current assets of ¥344.5bn vs current liabilities of ¥67.4bn support a current ratio of 511.5% and quick ratio of 504.3%. Inventories are modest at ¥4.84bn, consistent with a predominantly digital model. Total assets stand at ¥409.7bn and total equity at ¥333.8bn, implying an equity ratio of roughly 81.5% by computation; the disclosed equity ratio of 0.0% appears to be an unreported placeholder. Total liabilities are ¥79.8bn, and the debt-to-equity ratio is 0.24x, indicating modest leverage. Interest expense is minimal (¥66m), and interest coverage exceeds 400x, underscoring low solvency risk. Working capital is ample at ¥277.2bn, providing flexibility to fund development and marketing cycles. Overall capital structure is conservative, with significant equity backing and liquidity to weather release timing variability.

Cash Flow Quality

Cash flow statement items are not disclosed in this dataset (all zeros reflect non-reporting rather than true zeros), so we cannot directly assess operating cash flow conversion, capex intensity, or free cash flow. The reported OCF/Net Income ratio and FCF are therefore not meaningful for this analysis period. In general for a digital IP model, we would expect OCF to be influenced by deferred revenue, receivables collections from platform partners, and development capitalization/amortization schedules; without data, we cannot quantify these. Working capital appears strong given large current assets versus current liabilities, which should support cash generation stability between major releases. Earnings quality looks solid at the operating level given high gross and operating margins, but confirmation via cash conversion awaits actual OCF disclosures.

Dividend Sustainability

Dividend-related fields in this dataset (DPS, payout ratio, FCF coverage) are undisclosed here and should not be interpreted as zero. EPS is ¥27.89 for the period, but without DPS or full-year guidance, payout assessment is not feasible. Historically, sustainability depends on the balance between development investment needs and cash on hand; the current balance sheet suggests room for shareholder returns, but interim cash flow data are absent. We therefore cannot assess FCF coverage or payout ratio this period and defer judgment until updated cash flow and dividend disclosures are available.

Risk Assessment

Business Risks:

• Hit-driven revenue exposure to major title quality and timing (AAA development cycles).
• Potential impairments of capitalized development costs if titles underperform.
• Platform dependency and revenue share terms with first-party platforms and digital storefronts.
• Live service engagement volatility and content cadence risk.
• FX exposure from USD/EUR revenues and costs versus JPY reporting.
• Regulatory/approval risks in key markets (e.g., China).
• Competitive intensity across consoles, PC, and mobile ecosystems.

Financial Risks:

• Earnings volatility from non-operating items (FX/valuation) impacting the gap between operating and net income.
• Working capital swings tied to receivables from platforms and deferred revenue.
• Potential increases in development spend ahead of major releases affecting short-term margins.
• Impairment risk to intangibles/goodwill affecting equity and ROE.
• Limited visibility on cash flows this period due to undisclosed OCF/FCF.

Key Concerns:

• Revenue down 15.0% YoY while net income fell 14.5% despite stronger operating profit.
• Data inconsistency between reported cost of sales and gross profit; reliance on provided gross margin.
• Lack of disclosed cash flow data limits assessment of cash conversion and dividend capacity in this period.

Investment Implications

Key Takeaways:

• Operating margin expanded to ~20.4% despite a 15.0% YoY revenue decline, indicating improved cost discipline/mix.
• Net margin of 7.51% and ROE of 3.01% highlight room for bottom-line and capital efficiency improvement.
• Balance sheet is very strong with ~81.5% equity ratio (by calculation) and interest coverage >400x.
• High gross margin (61.6%) underscores the leverage in digital/IP model; sustaining it depends on release slate quality.
• Data gaps (cash flows, dividends) mean interim conclusions on FCF and payouts are preliminary.

Metrics to Watch:

• Deferred revenue and receivables (cash conversion and bookings visibility).
• Development capitalization, amortization, and impairment charges.
• SG&A trajectory and marketing efficiency around major launches.
• FX impacts on ordinary and net income.
• Pipeline cadence and performance of flagship franchises (engagement and monetization KPIs).

Relative Positioning: Versus domestic peers (e.g., Capcom, Bandai Namco, Koei Tecmo), Square Enix currently shows lower ROE and asset turnover but carries a stronger liquidity position and conservative leverage; upside depends on pipeline execution and maintaining elevated operating margins.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis