Koei Tecmo Shares Fall as Earnings Miss, Long-Term Doubts Grow

Shares of Koei Tecmo Holdings Co. fell the most since March after the video-game publisher reported first-quarter operating profit that missed market expectations, underscoring weak software sales and fueling investor concerns about its long-term growth prospects.

The shares dropped as much as 6.8% on Tuesday, their steepest decline since March, after it reported operating profit of ¥5.41 billion ($33 million) for the quarter ended June. That was below the Bloomberg consensus estimate of ¥6.58 billion.

The company released no major blockbuster titles for the quarter and relied largely on sales of existing games, including Pokémon Pokopia, which debuted in March. No new big game releases are scheduled for the second quarter.

“The July-September quarter will likely continue to feature primarily repeat sales of console games, making significant surprises versus consensus unlikely,” Citigroup analyst Tokiya Baba wrote in a report.

Koei Tecmo’s shares have been in a prolonged decline since last year as the broader video game industry grapples with slowing growth, rising development costs and consumers’ reluctance to spend more on entertainment. Meanwhile, investors have shifted capital toward artificial intelligence-related stocks.

Chief Financial Officer Kenjiro Asano apologized to shareholders during Monday’s earnings call for the company’s recent share-price performance, saying management was partly to blame.

Under Chief Executive Officer Hisashi Koinuma, Koei Tecmo has embarked on a long-term plan to move into the ranks of the world’s top 10 game companies by operating profit. Progress has been uneven, however, as many of the company’s original franchises have struggled to produce major hits, while some of its recent successes have relied on licensed characters, such as Nintendo Co.’s Pokémon.

That has raised questions about whether Koei Tecmo can consistently develop games that resonate with today’s players. Toyo Research Advice Co. analyst Hideki Yasuda said the company, best known for its historical simulation and action games, has been slow to adapt to changing consumer tastes.

“Japanese-style anime aesthetics are exactly what global consumers are looking for across the broader entertainment industry,” Yasuda said. “But Koinuma continues to pursue photorealistic graphics, which have become both outdated and increasingly expensive to produce.”