Starbreeze: Geographic expansion for Payday
Research Update
2024-12-11
08:30
Redeye updates its estimates for 2025 after the partnership announcement with the South Korean free-to-play giant Krafton. Due to the absence of a royalty component, we believe the work-for-hire partnership will generate stable income with high margins during 2025. We raise our base case.
Tomas Otterbeck
John Westborg
Starbreeze has announced a partnership with Krafton, the South Korean gaming giant behind PUBG. Krafton, a major player in the free-to-play market, reported a record-breaking USD1.4b in revenue in 2023, with USD460m—about one-third—coming from PC and console platforms. PUBG: Battlegrounds consistently attracts close to 800,000 daily players on Steam, making this partnership highly favorable for both the franchise and Starbreeze, according to Redeye.
Redeye expects that this work-for-hire partnership will be highly profitable because its franchise Payday is used with no royalty component. Redeye estimate that the project is worth around SEK68m in revenue during 2025. This means that we increase net sales from SEK144m to SEK212m for 2025. EBITDA is increased to SEK87m (SEK19m) and EBIT is raised to SEK-9m (SEK-77m). Our estimated in 2026 and beyond are unchanged.
This partnership is expected to strengthen the Payday brand and enhance overall player engagement. However, the distribution of player activity between Payday 3 and the Payday content within PUBG remains uncertain at this stage. Despite this, Redeye views the commercial impact of the collaboration as positive beyond 2025. Due to a positive cash flow injection in 2025, we raise our fair value range to SEK0.17-SEK0.95 (SEK0.15-SEK0.70). Our base case is increased to SEK0.45 (SEK0.38).
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 122.5 | 633.5 | 185.0 | 211.9 | 480.2 |
| Revenue Growth | -2.6% | 417% | -70.8% | 14.5% | 127% |
| EBITDA | 66.3 | 441.7 | 86.6 | 86.6 | 333.0 |
| EBIT | 6.7 | 190.4 | -214.6 | -9.4 | 129.6 |
| EBIT Margin | 5.5% | 30.0% | -116% | -4.4% | 27.0% |
| Net Income | -54.7 | 154.2 | -219.5 | -1.4 | 141.6 |
| EV/Sales | 9.8 | 1.6 | 6.5 | 6.2 | 2.4 |
| EV/EBIT | 179 | 5.5 | -5.6 | -140 | 8.8 |
Case
Masters of “Games as a Service”
Starbreeze has shown that the company can create recurring revenue from a loyal fanbase for a long period of time twice, both with Payday 2 and through the publishing success Dead by Daylight. With the release of the much awaited Payday 3, ten years after its forerunner, Starbreeze has a good chance to continue the successful journey with the Payday-franchise. Starbreeze has also started initiatives to develop a new game planned to be released in 2025/2026 and re-launched its publishing unit.
Evidence
Game launch is only the beginning
Payday 2 has generated net revenues of more than SEK1.3b to Starbreeze in ten years. An interesting aspect is that Payday 2 brought in “only” SEK120m in net income during the initial period after launch (in this case four and a half months) which shows how well Starbreeze manages the business model “Game as a Service”. Payday 3 has shown a major negative trend in engagement since its opening week, but so did Payday 2. We expect that the engagement will come back like last time, when new content has been launched.
Challenge
Key personnel have left the building
The success of Payday 3 ultimately is decided by the quality of the game, and how well it manages to serve loyal fans as well as create new ones the next-coming years. We would of course be more confident in the long-term quality assurance if more original creators (of Payday 1 and 2) were still operative in the company such as key game designer Ulf Andersson.
Challenge
A somewhat weak ownership
Starbreeze has no active major shareholders. Due to very bad risk management historically that ended in reconstruction in 2018, no founders, active personnel, or manager of the board have a significant shareholding. This, of course, weakens the incentives in the company to build great shareholder value.
Valuation
High dependence on one game launch
Starbreeze financial postition is solid after the succesful rights issue in june 2023 and the strong initial sales from Payday 3 of close to SEK500m. We expect a net cash position in Starbreeze of roughly SEK190m at the end of 2024. This is a major contrast to the SEK380m in debt Starbreeze had at the year-end of 2022. We assume Starbreeze is likely a takeover target.
Disclosures and disclaimers