On Wednesday, Square (NYSE:SQ) Enix Holdings (9684:JP) (OTC: SQNXF) received a new coverage from Bernstein SocGen Group with a Market Perform rating and a price target set at JPY5,250. The coverage begins amid the company's strategic adjustments, including a significant reduction in capitalized research and development costs, which is expected to lower cost overheads in the future.
The firm noted the potential challenges associated with major organizational changes, expressing concern over Square Enix's ability to maintain a consistent launch schedule for major new games. This is seen as a critical factor for the company's performance, given the smaller number of major titles currently in development.
Bernstein SocGen Group also addressed the company's financial prospects, considering a 15% operating margin to be within reach for Square Enix. However, they pointed out that the key uncertainty lies in projecting the revenue base that this margin will apply to in the coming years.
Furthermore, the analyst highlighted issues in Square Enix's mobile business segment, which has seen difficulties in the post-Covid landscape. Continued declines are anticipated in this area, influencing the firm's overall outlook on the company's financial trajectory.
The price target of JPY5,250 is based on a forward-looking price-to-earnings ratio of 19 times the estimated earnings for the fiscal year ending March 2026. This valuation reflects the firm's assessment of Square Enix's future earnings capacity and market position.
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