Starbreeze reported stronger-than-expected revenues for Q1 this morning. Meanwhile, the adjusted operating profit (adj. EBIT) was significantly lower than expected due to higher direct costs as well as selling and marketing costs. According to Starbreeze, efforts made together with co-publisher PLAION to enhance PAYDAY 3 have only had a minor impact on planned investments. Moving forward, the cadence and scope of the patches will increase, with several larger milestone releases planned. The first is set to launch in June. Starbreeze is expecting more visible results in terms of sales from the third quarter and onwards.

Revenues from PD3 and third-party publishing came in stronger than expected

Starbreeze’s Q1 revenues increased by 112% year-over-year to 56.6 MSEK, exceeding our estimate of 40.9 MSEK. The higher revenues were primarily driven by stronger-than-expected sales from PD3 and third-party publishing, amounting to 23.3 MSEK (Q4’23: 24 MSEK) and 17.4 MSEK (Q4’23: 14 MSEK), respectively. Meanwhile, revenues from PAYDAY 2 (“PD2”) fell short of our estimates, amounting to 10.9 MSEK (Q4’23: 18 MSEK).

Adjusted EBIT was significantly lower than our forecasts

Starbreeze reported an adjusted operating profit (EBIT) of -43.2 MSEK in Q1, which was lower than our expectations of -19.6 MSEK. The lower adjusted EBIT was due to significantly higher direct costs and somewhat higher selling and marketing costs. The reported EBIT, however, came in at -23.3 MSEK, but at the same time painted an overly rosy picture as the result excludes items affecting comparability of 19.9 MSEK. The items affecting comparability were related to the reversal of previously expensed personnel costs for the company’s long-term incentive program linked to the launch of PD3 and restructuring costs relating to remuneration payable to the company’s former CEO. Net financial items came in at 2.4 MSEK, resulting in a net profit of -21 MSEK and EPS of SEK -0.01. Cash flow from operating activities was 78.4 MSEK, where the paid receivable linked to PD3 sales had a positive effect on working capital. An additional 31.5 MSEK in trade receivables linked to PD3 remains to be collected.  At the same time, investments totaled -49 MSEK, resulting in a free cash flow of 29.4 MSEK. At the end of the quarter, Starbreeze had cash and cash equivalents of 387.2 MSEK and virtually no debt, showcasing an exceptionally robust financial position at the moment.

PD3’s most substantial changes are still on the horizon

The first quarter of 2024 bore witness to a further decline in player activity, a trend that has persisted since the launch of PD3. The strike team, both during and after the quarter, focused their efforts on aligning PD3 with player expectations through the Operational Medic Bag ("OMB"). However, it's evident that the three patches released by the OMB, which introduced features such as the unready button, quickplay, and various bug fixes that previously caused server crashes, have not been sufficient to significantly boost player activity. Nevertheless, the revenues in Q1 were higher than expected, and except for the stronger-than-expected sales from third-party publishing, we believe that the sequential development regarding PD3 and PD2 shows some early signs of Starbreeze being able to lure players back to PD3. The game's most substantial changes are still on the horizon, with three DLCs slated for 2024, solo-mode and offline mode in development, and highly anticipated legacy heists in the works. These updates hold the potential to further reinvigorate interest and lure more players back from PD2 to PD3. A natural increase in player activity is expected upon release, but the question remains on how sustainable that uptick will be. If the company is unable to revive PD3 while revenues from PD2 continue to decline, Starbreeze would be left without an obvious major revenue stream until the release of its next game, Project BAXTER, in 2026.