Starbreeze Q2’25 flash comment: Headline figures were weaker across the board

Source: Inderes

Starbreeze delivered Q2 revenues and EBIT well below our expectations, driven primarily by weaker-than-anticipated performance from PAYDAY 3 (“PD3”) and a higher cost base than expected. Although new PD3 content and updates have been released, player activity has remained muted. A new paid heist is scheduled for early September, but a more detailed roadmap for the game is still lacking. Regarding Project Baxter, the company provided no concrete updates on industry dialogues or potential partnership discussions following the release of the Vertical Slice (game prototype) in May. Furthermore, we interpret that Starbreeze will no longer focus on third party-publishing games, and instead sharpen its focus on the PAYDAY franchise, its own in-house projects, and work-for-hire. The company will hold its webcast on Friday, August 22, at 10 AM CEST.

PAYDAY revenue was well below estimates, while work-for-hire contribution exceeded expectations 

Q2 revenues reached 54 MSEK (Q1’25: 68 MSEK, Q2’24: 40 MSEK), which was 18% below our estimates and 34% higher than last year. The year-on-year revenue growth primarily stems from the work-for-hire partnership with KRAFTON, which contributed 20 MSEK to revenue. Revenue from PD3 decreased by -20% year-on-year to 18 MSEK (Q2’24: 22 MSEK) and by 46% quarter-on-quarter as Q1’25 was boosted by a one-off effect from the PlayStation Plus deal. PD2 revenue declined compared to the previous quarter and amounted to 8 MSEK (Q1’25: 11 MSEK), while being relatively stable year-on-year (Q2’24: 9 MSEK). Following the expansion of Roboquest to PlayStation 4 and 5, third-party publishing (“3PP”) revenue increased by 4 MSEK (q/q) to 7 MSEK (Q1’25: 3 MSEK, Q2’24: 9 MSEK). 

While the work-for-hire contribution during the quarter was above our estimates of 17 MSEK, PAYDAY-related revenue fell clearly short of our estimates. We think the year-on-year drop is particularly notable given the acquisition of full publishing rights during the quarter, as Starbreeze, as a result, retains all game-related revenue of the game. Third-party publishing (“3PP”) revenue was also below our estimate of 10 MEK, where we had expected that the expansion of Roboquest to PS4/5 to convert to higher 3PP revenue, given the strong reception and reviews on other platforms. While not disclosed explicitly, FX effects are likely to have impacted the top line negatively during quarter and given current FX rates, we expect the stronger Swedish krona (against USD and EUR) to weigh on the financials in Q3 as well.

Lower revenue growth and a higher cost base than expected behind the EBIT miss

Starbreeze reported a Q2 operating result (EBIT) of -25 MSEK (adj. Q1’25: -1 MSEK, Q2’24: -71 MSEK) and adjusting for items affecting comparability (“IAC”), adjusted EBIT was -17 MSEK. This was well below our expectations of 9 MSEK. While the report did not specify the composition of IAC, even when adjusting for these items, OPEX was higher than expected. This, together with higher recorded game amortization (27 MSEK vs. Inderes est. 18 MSEK) and weaker revenue growth, led to the lower-than-expected EBIT.

Cash flow from operating activities after WC changes was 39 MSEK (Q2’24: 3 MSEK) and investments for the quarter totaled 52 MSEK, leading to a free cash flow of -12 MSEK (Q1’25/Q2’24: -65 MSEK). The quarter’s operating cash flow was positively impacted by the delayed payments from Q1 related to game sales. Cash balance increased by 26 MSEK quarter-on-quarter to 156 MSEK (Q1’25: 130 MSEK), with virtually no debt (excl. leasing). In addition to the improved operating cash flow, the increase was primarily driven by the direct share issue of 33 MSEK that was carried out during Q2, as well as receiving game financing of 11 MSEK. A partner deal regarding Baxter is still our base case as it would alleviate cash flow pressures, likely at the expense of revenue potential.

Following the Q2 report, we see downward pressure on our estimates

Before the Q2 report, our FY25 revenue estimate stood at 254 MSEK (FY24: 186 MSEK), with adjusted EBIT of 19 MSEK (-229 MSEK). Given the weaker-than-expected Q2 revenue and EBIT, we expect downward pressure on our FY25 estimates. Our long-term outlook for PD3 remains unchanged, as we continue to view a significant resurgence in player base and revenue as unlikely.

However, the prospects for revitalizing player interest have improved following the acquisition of full publishing rights to the game from PLAION, granting Starbreeze a new level of freedom and control over the entire PAYDAY IP while enabling exploration of omni-media opportunities. The key question is whether player interest in PD3 can realistically be reignited after almost two years since the game’s release, or if improved communication, a faster cadence of content releases, and regular updates could reverse the current muted activity.

With its predecessor still attracting the vast majority of the PAYDAY franchise’s player base, we believe it could make financial sense for Starbreeze to reinvigorate PD3 with new content and updates, especially now that potential conflicts of interest with PLAION have been removed. While we still believe that the PAYDAY IP remains attractive on the market, given its long history and PD2’s success, the outlook is uncertain, which places considerable pressure on Project Baxter to deliver a successful launch. Notably, the company provided no concrete updates in the report on the progress of industry dialogues or potential partnership discussions during the quarter, despite completing the Vertical Slice (game prototype) at the end of May.