Analyst wants to sell more shares in his studios

Square Enix announced plans to sell more of its studios, according to an analyst.

With Crystal Dynamics, Eidos Montreal and Square Enix Montreal, Square Enix has already parted with several studios and sold them to the Embracer Group.

But more could follow.

MST Financial analyst David Gibson reports from a conference call held by the publisher in Japan. There, the company said the sale was “driven by concerns that the stocks could cannibalize sales from the rest of the group, thereby improving capital efficiency.”

The money from the sale was initially intended to be invested in AI, cloud and blockchain (NFT). Instead, however, it is used to strengthen the “core business segment gaming”.

In a second phase of planning, Square Enix envisages a “diversification of the studios’ capital structure”.

“Increasing development costs for making games mean that the company’s 100%-owned studios have to be selective and concentrate their resources, which limits expansion. Another option is to be flexible with the capital structure, which is why Square Enix is ​​doing a studio portfolio review.”

“Some studios will remain 100% while others will change (equity method or JV) and we will look at opportunities to expand the studio portfolio. EU/US studios will have the biggest impact on big titles, they will be able to focus their resources mostly on Japanese titles. So Square Enix is ​​looking to sell stakes in its studios to others to improve capital efficiency. Exactly when others like Sony etc. are buyers. I would expect Sony, Tencent, Nexon, etc. to be interested.”

Like Gibson notes, it is strange to sell more shares of his studios. Because the capitalized game development costs of Square Enix amount to 840 million dollars. And if you sell the three studios, you’ll have $1.4 billion in cash and no debt. This would be quite enough to start investing in game development.

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