Embracer: Solid performance in PC/Console
Research Update
2025-02-17
07:57
Analyst Q&A
Closed
Hjalmar Ahlberg answered 5 questions.
Redeye updates on Embracer following Q3-results where the company saw solid performance in PC/Console. The outlook for the segment is strong as well, while the outlook for Mobile and Entertainment & Services was softer than we expected, resulting in overall lowered forecasts.
Hjalmar Ahlberg
Tomas Otterbeck
Embracer’s Q3-results which was preannounced on January 29 was stronger than expected, driven by PC/Console which saw strong back catalogue revenue and was positively impacted by platform subscription deals and external development projects. Mobile and Entertainment & Services saw softer earnings than expected, however.
Looking into Q4 2024/25E, Embracer gave a positive guidance for PC/Console supported by strong performance of Kingdome Come: Deliverance 2. The outlook for Mobile was somewhat soft in our view, although it is largely due to increased UA investments which will have a positive effect over time.
While the outlook for PC/Console looks solid, we have lowered our assumptions for Mobile and Entertainment & Services. For Mobile, the lower estimates is partly driven by the increased UA investments, but also overall lowered assumptions for the segments profitability. However, with unchanged long-term assumptions, and a higher-than-expected pro-forma net cash position, our valuation range remains unchanged with a base case of SEK150.
| Key Financials | |||||
|---|---|---|---|---|---|
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Total Revenue | 42,862.0 | 48,131.0 | 25,758.5 | 23,477.9 | 25,185.1 |
| Revenue Growth | 118% | 12.3% | -46.5% | -8.9% | 7.3% |
| EBITDA | 9,787.0 | 11,377.0 | 6,788.2 | 7,052.2 | 8,263.0 |
| EBIT | 6,367.0 | 7,063.0 | 3,158.2 | 3,026.7 | 3,952.6 |
| EBIT Margin | 16.9% | 16.7% | 14.0% | 15.0% | 18.3% |
| Net Income | 5,515.0 | 5,193.0 | 2,070.4 | 2,383.0 | 3,142.2 |
| EV/Sales | 2.2 | 1.1 | 1.8 | 2.0 | 1.7 |
| EV/EBITDA | 8.4 | 4.2 | 6.0 | 5.6 | 4.5 |
| EV/EBIT | 12.9 | 6.8 | 12.9 | 13.0 | 9.5 |
Embracer reported revenue of SEK7,364m and adjusted EBIT of SEK1,175m which can be compared to our forecast of SEK6,197m and SEK855m, respectively (all numbers excluding Tabletop). As stated in our comment in connection with the preannounced Q3-results, the main driver behind the strong results was the PC/Console segment which saw revenue of SEK2,603m and adjusted EBIT of SEK551m (we forecasted revenue of SEK1,903m and adjusted EBIT ofSEK95m). We had expected a weak quarter for the PC/Console segment on the back of the company’s soft guidance, driven by few new game releases and a mature back catalogue. The stronger-than-expected outcome was driven by external development projects and upfront revenue from subscription platform deals, but also a strong performance from Embracer’s back catalogue. The full Q3-results disclosed that the back catalogue was the main driver of the two factors driving the strong performance. Coming to Embracer’s other segments Mobile and Entertainment & Services reported strong topline but softer profitability than expected. The table below summarizes Q3-results outcome compared to our forecast (please note that we only had estimates for revenue and EBIT per segment excluding Tabletop prior to the preannounced Q3-results).
| Embracer Group: Deviation table | |||||||
| SEKm | Q3 23/24 | Q4 23/24 | Q1 24/25 | Q2 24/25 | Q3 24/25E | Q3 24/25A | Diff, % |
| Total Net sales | 7,625 | 5,757 | 4,893 | 4,726 | 6,197 | 7,365 | 19% |
| PC/Console | 3,379 | 3,126 | 2,656 | 2,121 | 1,903 | 2,603 | 37% |
| Mobile | 1,642 | 1,366 | 1,389 | 1,358 | 1,560 | 1,669 | 7% |
| Tabletop | |||||||
| EES | 2,604 | 1,265 | 848 | 1,247 | 2,734 | 3,093 | 13% |
| Gross Profit | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.m. |
| Adj EBITDA | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.m. |
| Adj EBIT | 1,317 | 1,046 | 580 | 513 | 855 | 1,175 | 37% |
| PC/Console | 469 | 514 | 138 | 175 | 95 | 551 | 479% |
| Mobile | 611 | 514 | 518 | 374 | 468 | 400 | -15% |
| Tabletop | |||||||
| EES | 305 | 48 | -21 | 29 | 342 | 284 | -17% |
| Central costs | -68 | -30 | -55 | -65 | -50 | -60 | 20% |
| EBIT | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.m. |
| Net income | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.m. |
| Capex | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.m. |
| Adj EBITDA - Capex | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.m. |
| KPI's | |||||||
| Net sales y/y | 4% | -5% | -24% | -21% | -11% | -3% | |
| Organic growth % | -4% | -10% | -23% | -14% | -4% | 10% | |
| Gross margin % | 57% | 59% | 64% | 59% | 65% | n.a. | |
| Adj EBIT-margin | 18% | 16% | 10% | 14% | 16% | 16% | |
| Source: Redeye Research |
Disclosures and disclaimers