Redeye has revised its estimates after Starbreeze's Q3 report. While the quarterly results themselves were not particularly dramatic, the market reacted strongly, with Starbreeze shares dropping 20%. In this update, we analyze the stock's reaction, review the company’s financial position, and provide updated estimates and valuation for Starbreeze.

Net sales and EBIT were in line with our estimates. Approximately half of the sales came from Payday 3, while the other half was relatively evenly distributed between Payday 2 and the publishing title Roboquest. Investments in game development of Payday 3, will be reduced quite significantly from now on. Instead, most of the workforce will work on Project Baxter, which is planned for release in 2026.&nbsp;

Payday 3 accounted for SEK22.9m, while Payday 2 accounted for SEK11.5m. Its third-parties publishing generated almost SEK6m, most likely with Roboquest as the main contributor.

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* Industry's 10-year median ROIC is below 15%, indicating potentially lower long-term returns.
* Signs of weakening competitive advantage may lead to declining profit margins and cash flows.
* Lack of diversified revenue base increases vulnerability to market fluctuations and potential revenue loss.
* Products do not significantly contribute to the greater good, potentially limiting appeal to ethically-conscious investors.

* Strong recurring revenue model enhances business stability and predictability, making scaling easier.
* Asset-light business model allows for efficient scaling without costly reinvestment, enabling faster expansion and better cash generation.
* Partnership with Krafton for PUBG positions the company to capture significant value in the gaming market.

* Gross Profit Margin and Operating Margin (EBIT) are below the desired thresholds, indicating potential profitability challenges.
* Return on Equity (ROE) has not consistently reached 20% over the last five years, suggesting inefficient use of shareholder capital.
* Stock price has not compounded by at least 10% since IPO, indicating underperformance in long-term investor returns.
* Earnings (EPS) growth has been inconsistent and below the desired 10% threshold over the last five years.

* Revenue growth has consistently outperformed the industry average over the last five years, suggesting market share gains and competitive strength.
* Current assets are 1.5 times greater than current liabilities, demonstrating strong short-term liquidity and financial health.
* Net Debt is less than two times Operating Cash Flow, indicating a favorable debt repayment capacity using operating cash flow.
* Cash and short-term investments cover expected cash burn for more than two years, signaling market resilience and reduced need for immediate fundraising.

* Short tenure of senior team and CEO, with CEO lacking extensive business experience
* Inconsistent delivery on promises and poor track record of value creation
* Increase in share count without corresponding EPS growth, indicating potential dilution
* Low insider ownership and lack of significant stakes held by board members and management

* Clear strategic plan focused on creating value and commitment to innovation
* Incentives aligned with long-term shareholder value
* Presence of a controlling owner with long-term commitment and promotion of female representation in leadership

SEKm	2022	2023	2024e	2025e	2026e
Revenues	122.5	633.5	185.0	143.9	480.2
Revenue Growth	-2.6%	417%	-70.8%	-22.2%	234%
EBITDA	66.3	441.7	86.6	18.6	333.0
EBIT	6.7	190.4	-214.6	-77.4	129.6
EBIT Margin	5.5%	30.0%	-116%	-53.8%	27.0%
Net Income	-54.7	154.2	-219.5	-69.4	141.6
EV/Sales	9.8	1.6	6.5	9.6	2.5
EV/EBIT	179	5.5	-5.6	-17.9	9.3

Prioritizing Project Baxter

Distribution agreement expected next year

Pessimistic valuation of the Payday asset

Key financials

Our Q3-comments