HD Games finally profitable; Q3 benefits from Merchandise again

Research evidence excerpt

HD Games finally profitable; Q3 benefits from Merchandise again

Japan | Interactive Entertainment

Square Enix Holdings Co. Ltd. EquityMayResearch14, 2026

FLASH NOTEHD Games finally profitable; Q3 benefits from

RATING UNDERPERFORMMerchandise again

PRICE ¥2,451^

SqEnix delivered a visually strong FY3/26 OP beat, yet the underlying

fundamentals remain challenged. Core Digital Entertainment (DE, games) PRICE TARGET | % TO PT ¥2,530 | +3%

revenues continue to decline as the pipeline of new major titles remains thin, 52W HIGH-LOW ¥3,862 - ¥2,392

leaving it reliant on cost-cutting and one-time licensing gains from the MTG- FLOAT (%) | ADV MM (USD) 187.7% | 16.70

FF partnership. With FY3/27 guide for a 10% OP contraction; the activists MARKET CAP ¥300.3B | $1.9B

stake creates an exit overhang. We maintain UNPF rating. TICKER 9684 JP ^Prior trading day's closing price unless otherwise

noted.

FY3/26 Performance and FY3/27 Guidance: A Declining Core. The headline numbers for

FY3/26 show a significant disconnect between sales and profitability. Net sales fell 8.3%

YoY to ¥297.7bn, with the core DE segment dropping from ¥206.5bn in FY3/25 to ¥172.9bn

in FY3/26. Despite this revenue contraction, OP grew 35% YoY to ¥54.7bn, largely due to

"selection and concentration" strategies that optimized development footprints and reduced

amortization/marketing costs associated with a lack of new game launches. In essence,

ironically - the absence of new game launches helped the company report better profits. For

FY3/27, management's guide is cautious, forecasting flat sales at ¥298bn (+0.1%) and an OP

decline to ¥49bn (-10.5%), implying OPM contraction from 18.40% to 16.40%. Some may think

it is conservative, but in absence of revenue growth, this actually may be optimistic. Difficult

to say.