Embracer announced its financial results for the third quarter of the fiscal year 2023/24, related to the period between October and December 2023.
As mentioned in the documentation produced by the publisher, below you can find the results for net sales and EBIT (basically operating profit), both of which grew year-on-year respectively by 4% and 7%.
The company claims that this is an all-time high Q3 for the company, with results just above expectations, driven by strong performance for Asmodee, Middle-earth Enterprises, and the mobile businesses.
- Net sales increased by 4 % (-4 % organic growth) to SEK 12,050 million (11,622). The sales split per operating segment:
- PC/Console Games: decreased by -5 % to SEK 3,379 million (3,575).
- Mobile Games: increased by 4 % to SEK 1,642 million (1,573).
- Tabletop Games: increased by 7 % to SEK 4,425 million (4,146).
- Entertainment & Services: increased by 12 % to SEK 2,604 million (2,328).
- EBIT 1) amounted to SEK 273 million (226), an EBIT margin of 2 % (2 %). Adjusted EBIT increased by 7 % to SEK 2,150 million (2,009), an Adjusted EBIT margin of 18 % (17 %).
The declining sales of the PC and console games business are due to a quarter with few notable new releases.
The company mentions that Q4 will likely see higher release activity, with Alone in the Dark, Outcast – A New Beginning, South Park: Snow Day!, Expeditions: A MudRunner Game, Tomb Raider I–III Remastered, as well as Deep Rock Galactic: Survivor and Lightyear Frontier.
Apparently, Embracer isn't done laying people off. We learn that the company "still has a few larger structured divestment processes ongoing." Said processes are "In mature stages" and some of the companies affected may start restructuring before any divestment is announced, which certainly sounds ominous.
According to the press release and the speech by CEO Lars Wingefors during the following financial conference call, the group is in the "final stretch" of its restructuring program but is seeking "further improvements of our financial performance, primarily within PC/Console." So far, the total headcount has been reduced by 8% (904 developers in Q2, 483 in Q3, plus more in January and February 2024), and said "final stretch" may include "both divestments and consolidation."
During the Q&A session, Wingefors pointed in then layoffs following overinvestment affecting the whole industry.
"There are a lot of underlying changes to the industry, that obviously affect all of us in the industry. I think looking at the 8% reduction in the workforce... I don't know the numbers for the whole industry, but I think it's something that everything needs to go through.
It's driven by overinvestment in previous years because everyone put all capital into gaming and perhaps a bit too much capital in a few instances."
The executive also confirmed that the restructuring program will end in March 2024.
Wingefors admitted that the past few years' strategic investments into accelerated organic growth caused an imbalance between expenses and completed games.- The company invested SEK (Swedish Krona) 6.5 billion into PC/Console game development in the past year, and completed games with a value of less than half that amount, SEK 3.2 billion.
That being said, the company still pledges to invest more than the value of completed game development to "lay the foundation for future organic growth within PC/Console."
Wingefors also mentioned that its future games will be "more focused around established, owned IPs and studios which [the company] is confident will generate better predictability as well as increased ROI [Return on Investment] and profitability going forward."
As part of the Q&A session, the executive mentioned that in recent weeks Embracer has been signing some platform deals for content that the company is happy with. They've been turning down other offers for which they believe it'd be better to go to market on their own, but sometimes they are pleased to include some titles in subscription programs. "If you make the right games, you can do good business," he added.
Looking at specific games, Hot Wheels Unleashed 2: Turbocharged and Last Train Home performed a bit below expectations (Hot Wheels 2 still had a positive return on investment). Risk or Rain Returns significantly outperformed expectations. Wild Card Football and Arizona Sunshine 2 underperformed.
Over the past few months, closures and layoffs affected several of Embracer studios and their developers, including Eidos Montreal, Volition, Cryptic Studios, New World Interactive, Free Radical, 3D Realms/Slipgate Ironworks, Lost Boys Interactive, and more.
