It’s been over a year and a half since we’ve checked in on Square Enix. During that time, the Japanese publisher has undergone a host of changes.

Our last round of coverage focused on the company’s transition to its current “Medium-Term Business Plan,” a three-year strategy document that the company regularly refers to in earnings and investor presentations that outlines its operational and financial plans for the near future. We highlighted the risk of overrelying on declining F2P and MMO revenues to subsidize the publisher’s increasingly ambitious AAA launches. This was all part of a “shift from quantity to quality” under the latest Plan — which formally kicked off in May 2024, titled “Square Enix Reboots and Awakens.” 

As it turned out, we were right to be skeptical about the company’s intended strategy. In the latter half of 2025, a fresh new round of criticism came to the fore and the Plan saw increasing scrutiny despite recent stock price highs (more on that below). In the eyes of the company’s public detractors, the “reboot” part has been taking too long, and Square Enix has yet to “awaken” to the competitive realities it’s currently facing.

Before we discuss the latest criticisms, explore what’s changed, and take another look at the future, we’ll first examine the company’s recent performance. 

The Latest on Square Enix

In November, Square Enix delivered a briefing on results from H1 ‘26, which covered financial performance from April to September 2025, compared to H1 ‘25 numbers, and made revisions to the full fiscal year forecast. Though the company was able to increase its half-over-half (HoH) operating income by JP¥ 6.1B (~$38.9M), it posted a meaningful HoH decline in net sales of JP¥ 23.7B (~$151.1M) and revised its full year net sales forecast down to JP¥ 280B — a decline of JP¥ 44.5B (~$283.7M) relative to the prior fiscal year.

The company has chalked this up to a lack of major tentpole releases during this time, as well as a recognition of an “extraordinary loss” relating to the consolidation of its U.S. and UK operations, resulting in an undisclosed number of layoffs (expected to be ~100). This drastic reorganization is all a part of what the company has called "a fundamental restructuring of the overseas publishing organization … with the aim of further strengthening global publishing capabilities and improving operational efficiency." Square Enix has estimated an annual cost savings of JP¥3B (~$19M) resulting from this reorganization.

This latest reduction in force is actually a continuation of a longer trend for Square Enix, which previously divested its Western studios (Crystal Dynamics, Eidos-Montreal, and Square Enix Montreal) to Embracer for $300M in cash back in 2022.

Layoffs rarely garner public praise, but this particular move had the dubious distinction of garnering criticism from both ends of the spectrum. First came the predictable righteous backlash against yet another round of games industry layoffs — a restructuring that was undoubtedly viewed all the more negatively in light of poorly timed news that Square Enix also plans to leverage AI to “automate 70 percent of QA and debugging tasks” — though any connection was later debunked.

Then came criticism from former Square Enix executive, Jacob Navok, who described the layoffs as not going far enough. In his view, the expected cost savings resulting from the layoffs are a drop in the bucket compared to the costs associated with operating the comparably much larger development staffs in Japan – teams which are routinely being outmaneuvered by smaller, nimbler developers punching above their weight. As evidence, Navok points to recent examples like the roughly 30-person staff at Sandfall Interactive behind Clair Obscur: Expedition 33, and the three-person teams behind Roblox hits Grow a Garden and Steal a Brainrot. His full write-up is well worth the read, as the issues he raises are not only relevant to Square Enix but to nearly all AAA publishers today.

An Activist Enters the Chat

As an outside observer, it’s difficult to discern if these criticisms have influenced the company’s direction at all. However, one critic whose feedback has impacted Square Enix’s financial trajectory is 3D Investment Partners.

The Singapore-based, Japanese-led activist investor has published a 100+ slide presentation outlining a variety of concerns. These include “a pronounced stagnation in both revenue growth and profitability…[and] a significant deterioration in earning power, as evidenced by declines in operating income, return on equity, and other key performance metrics." 

3D outlines a number of perceived shortcomings throughout the deck, but the majority of the criticisms center on the company’s current management team and the results posted by Square Enix during its tenure. As a reminder, current CEO Takashi Kiryu took the helm prior to the start of the current Plan, succeeding the decade-long stint of former chief executive Yosuke Matsuda. 

The presentation focuses its analysis in large part on Square Enix’s Digital Entertainment business unit, which categorizes its products as either “HD” (AAA PC/console) or “SD” (mobile). 3D posits that both segments should be posting much stronger revenue growth and profitability, and that management’s plans to address these concerns have lacked specificity, urgency, and impact.

While the presentation makes a number of additional criticisms (missed opportunities for share buybacks; under-realized synergies with the Taito arcade business), it has its shortcomings, too. As Dr. Serkan Toto pointed out, 3D Investment Partners has no real experience in the games industry, which likely lends little credence to its recommendations in the eyes of Square Enix’s leadership, regardless of their validity. 

Furthermore, much of the comparisons 3D makes are to fellow Japanese publisher Capcom which (as we’ve previously covered) has been on a legendary tear in recent years. Additionally, it’s worth noting that much of the current management’s tenure coincides with the height of gaming’s excesses in 2021 and subsequent fallow years — a difficult period to operate within for any management team. Put differently, a defender of Square Enix might scrutinize many of 3D’s claims as cherry-picked to fit a specific narrative.

Nevertheless, even if shareholders had been excited about Square Enix’s previously outlined plans — which was clearly not a universally shared sentiment — it’s fair to say that management has not executed well on key aspects of that vision. More importantly, the company has not shifted gears rapidly enough in the face of clear underperformance and changing market conditions. At a certain point, leadership can no longer shift blame to exogenous forces — post-COVID contractions, gaming industry slowdowns, macro investing challenges in Japan, etc. — and must own up to its own shortcomings. 

Regardless, 3D’s public statements have been taken seriously by the markets, if not by Square Enix itself. The publisher’s stock popped 16% when 3D revealed an initial ~5% stake in the company back in April, which the investor has continued to double down on. As of late December 2025, it now owns roughly 16.5% of the company’s shares, making it the second-largest shareholder after Square Enix founder Yasuhiro Fukushima. 

What’s Next for Square Enix?

While it’s easy to question the sincerity of criticisms from an activist investor, it’s undeniable that 3D Investment Partners has a strong incentive to see Square Enix succeed. Furthermore, 3D is right to be concerned as a shareholder, even with the increase in Square Enix’s stock price. The publisher’s recent track record of AAA releases — the area of the business in which it claims to be emphasizing “quality over quantity” — is replete with titles that were either critical failures, commercial underperformances, or too small in scope to be impactful on overall business outcomes.

One area that both 3D and Navok agree on is the unsustainability of Square Enix’s HD development model. Not only are Square’s AAA development teams large, slow, and expensive, but they also operate less profitably than those of competitor publishers.

This model is not unique to Square Enix, of course, and many of the questions posed to the company are asked of its peers both in Japan and elsewhere. Nevertheless, the activist pressure has forced Square Enix into a public conversation about capital efficiency, portfolio focus, and accountability. 

Even if management ultimately rejects 3D’s proposals, the questions will not go away and 3D will continue to have a very active voice (at least, until it decides to sell). This makes each successive HD release all the more pressure-packed. Given the multiyear lead time to develop these titles, it’s possible that things could get worse before they get better.

In the near term, Square Enix is set to continue its unrelenting push of Final Fantasy VII releases, with a port of Final Fantasy VII Remake Intergrade due out on Nintendo Switch 2 and Xbox Series X|S around the time of this article’s publication. This will be followed up in February by Dragon Quest VII Reimagined — a remake of the 2000 original — for all major current-generation platforms. 

Beyond that, things start to get a bit nebulous. There are definitely a few highly anticipated titles in the pipeline — including the final entry into the FFVII Resurrection Trilogy, the-long awaited Kingdom Hearts IV (first announced back in 2022), and two new IPs in The Adventures of Elliot: The Millennium Tales (an ARPG from the creators of Octopath Traveler, due out this year) and Killer Inn (a murder mystery shooter-meets-deduction game, launch date TBA). No news yet on the next mainline Final Fantasy, though one has to assume it’s at least a couple of years away still  — and likely beyond the scope of the current Medium-Term Business Plan. As for ongoing MMO content, Final Fantasy XIV fans aren’t expecting any major expansions until 2027.

Perhaps Square Enix has always viewed this Medium-Term Business Plan as more of a fallow period for releases, with a greater emphasis placed on internal improvements, financial engineering, and rightsizing. Which feels like an optimistic view, given that the Plan prior to this one was also heavily focused on restructuring — the divestiture of Western studios, a shake-up in publishing leadership, a reorganization of the sales and marketing functions, etc.

Whatever the case, Square Enix is left with few options if it wants to stick to its “quality over quantity” product strategy. One potential path would be to apply that same approach to its workforce, asking for greater output from fewer employees, performing more layoffs, and continuing to restructure the business. Given the extremely pro-labor environment in Japan and the challenges associated with downsizing a mostly Japanese workforce, this seems unlikely to be Square Enix’s primary lever. 

Another related option would be to lean into AI as a means of increasing worker productivity. To be clear, I’m not suggesting this would be an easy, palatable, or even realistically achievable approach for Square Enix. It would be a tough road to take given the meaningful technological investment, employee upskilling, and workforce transformation required to successfully execute such a strategy — to say nothing of the potential fan backlash that might accompany it. Nevertheless, I do find it puzzling that the company was so quick to publicly embrace blockchain technologies just a few years ago whereas it seems to have taken a decidedly more tentative approach to generative AI. It may be the case that there is more happening behind the scenes at places like Square Enix AI & Arts Alchemy than the public is privy to. Regardless, I would not consider Square Enix to be a public standard bearer for the “AI x Games” movement. 

A third path would be for Square Enix to reinvest in its floundering SD division, bolstering its recurring revenue to support the bigger bets required of its “quality over quantity” HD unit. They would certainly be late to the party here, given the maturity of the mobile games space, but perhaps a combination of DTC optimizations and smaller wins on mobile could help bridge the gap to the next mainline Final Fantasy. Indeed, management has already taken some steps in this direction according to the company’s November Progress Report.

Whatever path it chooses, Square Enix still has the talent, the IP, and the balance sheet to prove its critics wrong. Yet the window to turn “reboot and awaken” from a slogan into a strategy is narrowing fast and the chorus of critics is only growing louder. 

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