Games group Embracer misses Q3 operating profit estimate

By Jesus Calero

(Reuters) -Swedish games developer Embracer said it may miss its debt reduction target, but maintained its full-year forecast after on Thursday reporting slightly weaker-than-expected operating profit for October to December.

Shares in the company fell by more than 16% at 09.22 GMT, putting them on track for the worst day since May 2023. The company’s shares have since lost more than a half of their value.

The owner of the Tomb Raider franchise said its adjusted operating profit rose 7% to 2.15 billion Swedish crowns ($204.40 million) in the quarter compared with analysts’ forecasts of 2.21 billion crowns in a company-provided consensus.

It said it will reach the low end of its 7.0 billion to 9.0 billion crown forecast for adjusted operating profit, driven by a softer 2023/2024 PC/Console outlook, recent game performance, and some fourth-quarter pipeline shifts.

As it carries out a restructuring, Embracer said it may fall short of its March net debt target of 8 billion crowns, but that it was committed to a 12-month leverage goal and maximising shareholder value.

Jefferies said in a note the third-quarter results were considered “soft,” despite the ongoing restructuring, but noted the mobile games segment’s results exceeded expectations.

“We are very pleased with the mobile numbers. Profitability came in record high at 47%, over 600 million crowns in profits, which is a 2% growth year over year,” CEO Lars Wingefors told Reuters.

He partly attributed the mobile numbers to a strategic shift from hypercasual – or easy-to-play games that are typically cheaper to develop – towards more recurring games – that are more complex and require deeper engagement from players.

The games sector as a whole benefited from an upsurge in demand for video games during COVID-19-related lockdowns, but has since been hit by development delays, falling demand and some of Embracer’s new titles have been badly received.

The company suffered a setback in May when a $2 billion partnership deal with an undisclosed company fell through, which led it to announce a major restructuring plan in June.

Two weeks ago, Embracer Group halted the development of a new “Deus Ex” game, redirecting resources to an original franchise to reduce costs.

Embracer’s French rival Ubisoft, which reported its Q3 results on Feb. 8, expressed optimism as net bookings topped guidance at 626 million euros ($674.14 million), driven by new releases and back catalogue sales.

($1 = 10.5186 Swedish crowns)

(Reporting by Jesus Calero; Editing by Kim Coghill, Christopher Cushing and Barbara Lewis)