PAYDAY 3 will set the tone for the future

We reiterate our Reduce recommendation for Starbreeze and keep our target price of SEK 0.30. While the company currently faces challenges with turning PAYDAY 3 (“PD3”) around, there are positive developments, such as Project Baxter progressing towards its 2026 release and the publishing business continuing to provide decent revenue streams. However, heavy investment in PD3 and future game projects could strain cash flows if current trends in PD3 persists. Our estimates assume PD3 will not see a major recovery, and the next two game releases will achieve moderate commercial success, with Starbreeze securing game financing for these projects. We believe this outlook is largely priced into the current share value, supporting our cautious "wait-and-see" stance.

The future of PAYDAY 3 remains uncertain

The launch of PD3 in 2023 did not meet the community's expectations, and current player activity is far from the levels we are used to see in the predecessor and what the company would like. Despite ongoing efforts such as game enhancements and new content, these measures have not yet been enough to significantly improve player activity. Given that Starbreeze relies heavily on this single franchise, it presents challenges to the company's revenue potential and future game releases. However, like other Games-as-a-Service (GaaS) companies, Starbreeze operates with a long-term strategy, where success often takes time to build. There are notable examples of troubled game launches that eventually became long-term successes. While there have been small improvements in player activity and community sentiment in response to recent updates, a full turnaround remains uncertain at this stage.

Strategic diversification beyond PAYDAY with two new titles planned by 2028

Starbreeze’s long-term strategy is to reduce its dependence on a single franchise by expanding its portfolio. The first major step in this strategy is the planned release of Project Baxter in 2026, a game based on the Dungeons and Dragons IP. The game has a similar budget to PD3 (USD 50+ million) and the company’s ambition is to self-publish the game. The next milestone is the release of an as-yet-unnamed game in 2028, which Starbreeze aims to develop internally and self-publish. By 2028-2029, Starbreeze aims to have three active titles on the market, all utilizing the Games-as-a-Service model. Alongside this, the company plans to expand its publishing business, which would help stabilize revenues and earnings over the long term.

Current share price does not adequately reward investors for the risks involved

We believe the current valuation reflects a scenario where PD3 does not see a significant recovery, and future game releases achieve moderate commercial success, without becoming blockbuster hits. A substantial recovery in PD3 is still possible, and if it were to happen, the stock appears undervalued at its current price. While there are examples of troubled launches turning into long-term successes, we view these as rare exceptions rather than the norm. Given this, we believe a conservative approach is prudent when valuing Starbreeze. Due to the uncertainty surrounding both the recovery of PD3 and the outcomes of future game projects, we have modeled different scenarios in our DCF valuation, with the per-share valuation ranging from SEK 0.16 to SEK 0.88. Our base-case DCF valuation comes in at SEK 0.35, however, since most of the projected cash flows are concentrated in the future, the DCF does not offer strong support in the short term. Starbreeze’s valuation remains closely tied to the near-term performance of PD3 and given the current headwinds, we believe a cautious stance on the company is warranted until player activity and sales trends improve.