Remedy Q2 results on Friday: Eyes on the progress of game projects and the upcoming AW2 release

Translation: Original comment published in Finnish on 8/6/2023 at 6:17 pm EEST.

Remedy will report its Q2 results on Friday at 9.00 am. This year, Remedy is still clearly in an investment phase as the company builds its strategy for the next growth leap with 5 major gaming projects under development. Thus, in light of the figures, the Q2 report will be weak and the progress of game projects in the pipeline will be the most relevant thing at this point. The release of Alan Wake 2 on October 17 will obviously be the key event of the year and also a key near-term driver for the stock. In the Q2 report, we will be interested in any further details regarding the game's release, marketing and initial reception.

We expect Q2 development fees to be slightly higher than in Q1

We forecast Remedy's Q2 revenue to decrease by 10% year-on-year to EUR 8.5 million. Compared to the previous quarter (Q1'23: 6.5 MEUR), we expect an increase as due to timing factors we expect Alan Wake 2 to have generated more development fees in Q2 compared to the first quarter. We expect that Control’s royalties are down year-on-year, which is reflected in lower royalty income 0.4 MEUR vs. Q2’22: 2.0 MEUR). We do not expect Alan Wake Remastered to generate royalties yet, but this is possible in the coming quarters as the game becomes available for free download on Sony's PlayStation Plus service in July (Sony will pay a certain compensation for this) and as the marketing of Alan Wake 2 increases the buzz around the game brand.

Investment in games projects under development will weigh on results this year

In 2023, Remedy's investment in game projects in development will only increase from the previous year, so it's pointless to expect miracles from the company's results. The company’s outlook also guides for revenue to decline and a loss-making operating result. With low royalty income, increasing recruitment, external game development and rising other costs, we expect EBIT for the full year 2023 to be negative at EUR -12.2 million (2022: -0.6 MEUR). For the second quarter, we expect an EBIT of EUR -3.9 million (Q2’22: -2.4 MEUR).

Progress on games projects is the key at this stage

In the June analyst call, Remedy already gave some preliminary comments on the game projects in Q2. Alan Wake 2 is progressing as planned in the final stages of production towards its release on October 17. Control 2 and Max Payne projects that entered the proof-of-concept stage in early 2023, have progressed well and their team sizes will be expanded, while AW2 starts to free up resources toward the end of the year. Among multiplayer projects, Condor has continued to develop steadily in the POC stage and, it looks like the team size of the project will be scaled up later in the year. As regards Vanguard, new recruitments of key personnel at the end of last year has been good and the project has made progress in the early part of the year. However, the POC stage will continue and, e.g., the development of the core gameplay loop still requires some fine tuning. It looks as if the project staff will be scaled up in 2024.