Remedy Q1'25: FBC: Firebreak's release is just around the corner

Translation: Original published in Finnish on 05/02/2025 at 08:15am EEST

We reiterate our Buy recommendation for Remedy and revise our target price to EUR 20.0 (was 19.0 EUR). The Q1 result was clearly better than we expected and game projects are progressing well in production. The initial reception of FBC: Firebreak to be released on June 17th looks positive, and there is potential that the game surprises positively compared to cautious expectations. We see the game's approaching release as a driver for Remedy's stock, although in the big picture, earnings expectations are still weighted towards 2027, when we expect Control 2 to be released. Compared to the subsequent earnings potential, the stock's valuation still looks very attractive, and since the beginning of the year, the company has taken steps towards its realization. 

A good start to the year

Remedy’s Q1 revenue grew by 24% to 13.4 MEUR exceeding our 11.6 MEUR estimate. The revenue beat came from development fees (Q1'25: 10.7 MEUR). Royalties in Q1 were 2.6 MEUR, which was what we expected. According to Remedy, most of these were related to Alan Wake 2 royalties, as we expected. According to the company, Alan Wake 2 continues to sell steadily and accumulate royalties. At the turn of last year, the game's sales exceeded 2 million copies, but the figure was not updated now. The company also still sees potential in the old Control game to improve the long tail of sales now that all rights to the game have been transferred to the company at the beginning of the year. The higher revenue in Q1 was also reflected in earnings due to the fixed cost structure, and EBITDA (Q1’25: 2.6 MEUR) exceeded our estimate clearly (-0.9 MEUR). In Q1, the cash flow from operating activities (Q1’25: -6.6 MEUR) was weak, but this was purely due to the timing of royalties and development fees.

FBC: Firebreak supports earnings in the coming quarters

In its guidance that remained unchanged as expected, Remedy estimates revenu(2024: 50.7 MEUR) and EBIT (-4.3 MEUR) to increase compared to the previous year and that EBIT will be positive. The focus for growth is naturally on the release of FBC: Firebreak, but, in addition, the royalties from Alan Wake 2 and other older games create a base for revenue. This year, significant development fees will also be recorded from the Max Payne project and Control 2, for which we revised our forecasts slightly upwards. Remedy's cost structure also developed more moderately than we expected in Q1, and as a result, our earnings forecasts for the coming years increased somewhat. All in all, the multi-project model now seems to be working, as the game projects are progressing well in production, and costs no longer need to be increased as in recent years. This creates a promising foundation for earnings growth in the coming years as new games are released at a steadier pace. Control 2 moved into full production in February, and the release we expect in H1’27 still seems like a reasonable assumption. Max Payne is also progressing strongly in full production (has been there since Q2’24) and we expect the game’s release in H1’26. No further information was available on the fourth project, which is in an early stage.

FBC: Firebreak the driver for this year, but the potential of Control 2 is already on the horizon

We believe in Remedy’s ability to create multiple high-quality and successful games in the long term, and considering the growth and profitability potential this offers, the valuation of the share (2025e EV/S 2.9x) is attractive. The long-term potential is also indicated by the value of the baseline scenario of the DCF model (EUR 26.7). However, the model is very sensitive to the success of future games due to the fixed cost structure and self-publishing. This year, FBC: Firebreak’s release determines the direction of the stock, and based on the game's initial positive reception, the release still has the potential for a positive surprise relative to cautious expectations. However, in terms of medium-term value creation, Control 2 is a much more important project. We believe that at some point in the next few years, Remedy's stock will begin to more accurately reflect the company's long-term potential as game projects move toward release.