Major Square Enix Investor Criticizes Its Management & Asks Shareholders to Share Their "Frank Views"

3D Investment Partners, an investment management firm representing a major shareholder of Square Enix, published a presentation outlining the publisher's issues across over 100 slides.

The investor is concerned about Square Enix's management and wishes to receive "frank views" of other shareholders.

The firm is not happy with the new president, Takashi Kiryu, who has led the company to "sluggish" revenue growth rates and profit margins, in its opinion: "From FY2022/3 to FY2025/3, SQEX HD’s revenue growth rate was -4%, and SQEX HD is the only company in its industry to record negative growth," the report says. "In FY2025/3, SQEX HD’s operating profit margin was around 13%, which is around half of the 28% average operating margin for six peer companies."

The investor sees the cause of these management issues in the underperformance of its HD (High-Definition)/SD (smart device, PC browser, etc.) games businesses. Square Enix is "in a very serious situation," with a 32% operating income decrease, from ¥59,261 million (around $378,000) in FY2021/3 to ¥40,580 million ($259,000) in the recent report.

Other than that, the investor thinks that Square Enix "faces issues in terms of market valuation because SQEX HD owns non-game businesses that have little synergy with its game business, which causes a severe conglomerate discount."

3D Investment Partners doubts that the company's medium-term business plan for FY2025/3 to FY2027/3 will resolve its issues.

The firm has been trying to get some answers from the president since July 2024, but Kiryu "replied only with a brief email stating, without addressing any of the specific management issues or solutions we had raised, and without providing any concrete explanation of his reasoning, that the Current Medium-Term Business Plan was sufficient and a new review framework was not necessary."

Dissatisfied, 3D Investment Partners has shown the presentation to Square Enix's other shareholders and is now expecting them to share their opinions on its "strategy, capital allocation, business portfolio, governance, growth opportunities, and other related matters."

Accidentally or not, this criticism comes soon after Square Enix's decision to automate QA with AI. It's not that surprising, as soon after, Jacob Navok, former Square Enix director, shared that AI hate is "driven by emotion rather than logic" because "Gen Z loves AI slop."

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