The PAYDAY 3 game has undergone notable improvements during the past year and the sentiment around the game has shifted more positive in recent months. However, despite these achievements, the player activity remains muted. We believe this reaffirm our conservative investment view on the company and with limited catalysts for the stock in the short-term, we reiterate our Reduce recommendation while lowering our target price to SEK 0.22 (was SEK 0.30).

Q3 results met our expectations

Starbreeze’s Q3 revenues amounted to 43 MSEK, which was in line with our estimates. Although PD3 revenues were stable q/q at 23 MSEK, falling short of our expectations, PD2 revenue came in above our forecasts. The adjusted EBIT amounted to -63 MSEK, which matched our estimates, and represented a small improvement q/q (Q2’24: -71 MSEK). The cash position declined by some 85 MSEK to 249 MSEK due to continued high investments, unfavorable working capital changes and negative earnings. Starbreeze expects lower investment needs for PD3 going forward as initiatives like Operation Medic Bag conclude. During and after the quarter, Starbreeze released additional PD3 content and introduced several new gameplay features (e.g., CrimeNet server browser, VOIP, a revamped UI). Although sentiment has improved in recent months as a result, player activity remains subdued.

We make small changes in our estimates

We believe recent developments in PD3 support our broader outlook, suggesting that a significant resurgence in player base and revenue is unlikely. Instead, we anticipate that player activity and revenues will gradually decline throughout 2025 and beyond. In response to the Q3 results, we have made minor adjustments to our revenue estimates, lowering PD3 projections for Q4 while slightly raising those for PD2. Additionally, we have made small changes to our cost estimates, especially regarding D&A during 2024-2025 but also to OpEX. However, the impact on free cash flow is less significant.

We see no rush to the share despite the recent drop

Despite a recent drop in the share price, we don’t see any rush into the stock yet. A PD3 turnaround appears increasingly improbable, and short-term catalysts are limited. While the low market valuation could present attractive upside potential if there would be a strong recovery in PD3’s player activity and revenue, or if Project Baxter succeeds, the impact of recent measures - such as content updates, gameplay enhancements, and bug fixes - has been modest. With little clues about what Starbreeze will do differently in PD3’s second year on the market, we believe a continued conservative approach remains warranted. Our DCF-valuation stands at SEK 0.35, reflecting a moderately optimistic long-term scenario. However, given that the cash flows are highly concentrated in the future, we do not think it provides good support in the short term as Starbreeze’s valuation is strongly linked to the near-term performance of PD3. Additionally, while the Dungeons & Dragons game (Project Baxter) is progressing toward its 2026 release, uncertainties around partnership structure and market interest remain, offering limited support for the stock at this stage. In our view, a substantial and sustained increase in PD3 player activity, along with more clarity on Project Baxter, will be important to provide support to the share.