Embracer Group Reports Financial Downturn in Q1
Swedish gaming giant Embracer Group has released its financial report for the first quarter of the fiscal year, revealing an operating profit significantly lower than analyst predictions. This news has already sent shockwaves through the market, with Embracer's shares plummeting 22%. Should this negative trend continue, the company could see its largest single-day stock drop in two years.
The period from April to June saw a continued decline in Embracer's net sales, which fell by 31% year-over-year to $350.7 million. While the entertainment and services sector showed a positive growth of 41%, the mobile and PC/console video game divisions experienced substantial decreases, dropping by 63% and 38% respectively.
Profits Miss Forecasts Amidst Market Challenges
For the first quarter, Embracer recorded an adjusted operating profit of 75 million Swedish Kronor ($7.8 million), falling short of analysts' forecast of 141 million Kronor. The company anticipates similar results for the second quarter, whereas analysts had predicted a much higher 359 million Kronor. Looking at the full year, the adjusted operating profit forecast has been cut to 1 billion Kronor ($104.4 million), which is more than double below the expectations of analysts surveyed by the company.
Embracer's workforce saw a slight increase from 7,180 to 7,228 employees compared to the previous quarter. However, on a year-over-year basis, the number of employees has nearly halved from 13,712 in the first quarter of 2024. This drastic reduction is attributed to extensive layoffs and the sale of various studios, including Gearbox.
Back-Catalog Sales and New Leadership
Embracer links the mediocre quarterly results to weak sales from its PC and console game back-catalog. The company notes that competition from newly released titles during the quarter diverted player attention, causing games like February's Kingdom Come: Deliverance II to attract fewer users. Despite this, Embracer still considers Kingdom Come: Deliverance II a strong contender for "Game of the Year."
Phil Rogers, who took over as CEO from Lars Wingefors in early August and also leads Crystal Dynamics, Eidos, and PLAION, emphasized that the company is undergoing a "transition year" due to structural changes. Rogers stated, "The Group’s first quarter results reflect a quiet period for PC and console releases, and this year will be a transitional one in terms of major proprietary releases, as we focus on operational and strategic execution. With the expected listing of Coffee Stain Group at the end of 2025, Embracer will transform into Fellowship Entertainment – an IP-centric company with strong franchises and talented creators in a structure that enables focus and operational discipline."
Following the full separation, Embracer (to be renamed Fellowship Entertainment) will retain franchises such as The Lord of the Rings, Tomb Raider, Kingdom Come: Deliverance, Metro, Dead Island, Darksiders, and Remnant.
Game Performance and Future Pipeline
Killing Floor 3, which launched in July, performed slightly below the company's initial forecasts. Embracer is hopeful that upcoming updates and an open dialogue with the community will help ensure the action game's "long-term value."
Kingdom Come: Deliverance II is set to receive more content in the future. Developers have reportedly "doubled their efforts" in the second quarter, which is beginning to pay off. The second expansion, Legacy of the Forge, is slated for release in the autumn and aims to significantly deepen the gameplay experience. A third expansion is expected during the "holiday season."
Back-catalog sales for the quarter fell by 36% year-over-year. The top-selling back-catalog titles included Kingdom Come: Deliverance, Dead Island 2, Star Trek Online, MX vs. ATV Legends, Neverwinter Nights, Remnant II, Metro: Exodus, Wreckfest, and Chivalry II.
The report also highlighted that Embracer currently boasts "one of the most impressive pipelines with upcoming games in the industry," including nine AAA titles not funded by partners. However, the company acknowledges that one or two of these releases might be pushed back to the 2029 fiscal year, which concludes on March 31, 2029.
What This Means for Players
For gamers, Embracer's financial report signals a period of strategic restructuring, but also a continued commitment to its most valuable intellectual properties. While some releases may shift, the focus on enhancing existing titles like Kingdom Come: Deliverance II with new content, and the promise of a strong future pipeline of AAA games, suggests a long-term vision. Players can expect ongoing support for beloved franchises and the eventual arrival of new, high-quality titles, even as the company navigates its "transition year" to become Fellowship Entertainment.
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