Square Enix (SE) – highlights from results conf call… strap on your boots, this is a doozy 1/10 #SquareEnix
1) Crystal Dynamics/Eidos (CD/E) sale was driven by concerns that the titles cannibalized sales of the rest of the group and so it could improve capital efficiency
2) Sale of CD/E is phase 1, phase 2 is diversification of studio capital structure
3) Phase 2 you say? Rising development costs of making games means with 100% owned studios, they need to be selective and concentrate resources, which limits expansion
4) Phase 2 – Another way is to be flexible with capital structure, so SE is doing a studio portfolio review.
5) Phase 2 = Some studios will remain 100% while others will change (equity method or JV), will also look to explore to expand the studio portfolio
6) Phase 2 – Biggest impact is on EU/US studios around large titles, will be able to allocate resources mainly to Japan titles.
7) Phase 2 = So SE is looking to sell stakes in its studios to others to improve capital efficiency. Right when others like Sony etc are buyers. I would expect Sony, Tencent, Nexon etc would be interested.
8) SE capitalized game dev costs are currently running at US$840m (content production account)
9) But post the CD/E sale the company will have US$1.4bn in cash and zero debt .. which is plenty to fund expanded game investment and not sell down stakes in its studios.
10) Extraordinary decision by management. Stock price likes it in the short term (+9% today) but longer term…. END #SquareEnix
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