Starbreeze Q1'25: More updates just around the corner

Starbreeze delivered a Q1 revenue above our expectations, driven primarily by a stronger-than-anticipated performance from PAYDAY 3 (“PD3”). While one-off costs weighed on the result, the adjusted figures were more in line with our estimates. Although a detailed 2025 roadmap for PD3 is still pending, several updates are expected over the remainder of May. In addition, the company’s acquisition of full publishing rights enhances its agility in content deployment and was highlighted in the report as a key strategic focus. Following the Q1 report, we made limited changes to our long-term forecasts, with revisions more focused on 2025 figures. As such, we reiterate our Accumulate recommendation and keep the target price unchanged at SEK 0.26.

Q1 revenue was above our estimates

Starbreeze’s Q1 revenue amounted to 68 MSEK, exceeding our estimates by 26% (54 MSEK). The main reason was a stronger-than-expected contribution from the PlayStation Plus deal, with PD3 revenue amounting to 33 MSEK (Inderes est: 18 MSEK). PD2 revenue was also above our estimates (12 MSEK vs est. 9 MSEK), while third-party publishing (“3PP”) revenue clearly fell short of our estimates (3 MSEK vs est. 11 MSEK). Revenue from the KRAFTON partnership was in line with our estimates. One-off costs* weighed on the reported EBIT, amounting to -29 MSEK, which was below our estimated -6 MSEK. However, adjusting for one-off costs, the adjusted EBIT aligned better with our estimates. As such, adjusted EBIT improved notably both quarter-on-quarter and year-on-year, mainly driven by significantly lower game development amortization. The cash position declined by some 61 MSEK to 130 MSEK due to continued high investments, unfavorable working capital changes, and negative earnings. Starbreeze experienced a delay in cash inflows from game-related sales due to the negotiations that the company has with PLAION.  However, after the first quarter, the company received its claims against PLAION linked to PD3 of ~62 MSEK, as well as issue proceeds of 33 MSEK**.

Estimate changes more focused on the current year

Despite the stronger-than-expected revenue from PD3, our overall outlook for the game remains unchanged for the medium and long term, as we see the contribution of the PlayStation Plus deal as more of a one-time effect. As such, we continue to see a significant resurgence in player base and revenue as unlikely. However, we are slightly more optimistic about PD2 with the company gaining greater control of the broader IP following the deal with PLAION announced last week. We believe this could allow Starbreeze to revitalize the game by adding new content. Following the Q1 report, we have increased our PAYDAY-related revenue for 2025 by some 20%, and while we keep our PD3 revenue estimates beyond 2025 largely intact, we have slightly increased our estimates for PD2. Conversely, the weak 3PP performance in Q1 had a slightly negative impact on our estimates and partially offset the revenue increases from the PAYDAY franchise on the longer-term estimates. The overall impact on free cash flow remained limited.

We remain cautiously optimistic about the stock

Following our estimate revisions, we arrive at a DCF value of SEK 0.44 (was SEK 0.45). However, our DCF value reflects a moderately optimistic scenario and should be viewed with caution. We still believe the DCF provides limited near-term support as the share price remains closely tied to the performance of PD3s (and PAYDAY IP in general), which remain soft, as well as the upcoming Baxter release, where the visibility is still low. That said, we continue to see underlying value in the PAYDAY IP, and the recent publishing rights deal gives Starbreeze more levers to pull than before. Given the current low absolute valuation and improved cash flows from the KRAFTON work-for-hire agreement, we continue to believe that Starbreeze could be an interesting, albeit high-risk, investment over the next 12 months.