Starbreeze: Strategy update pushes positive triggers forward

Following last week’s announcements, we are lowering our recommendation to Reduce (was Accumulate), while cutting the target price to SEK 0.15 (was SEK 0.22). The revised strategy, including axing Baxter from the pipeline, marks a decisive shift in the company’s strategy and removes yet another core diversification pillar from our investment case. While work-for-hire projects are expected to become a more natural part of the operations, Starbreeze is effectively returning to a single-franchise focus, which it previously aimed to move away from. Although we have increased our near-term revenue estimates for the PAYDAY franchise and work-for-hire activities, the strategic reset removes two major titles from our forecasts, resulting in a lower expected base of revenue, earnings, and cash flow throughout the forecast period. Given the current subdued player activity, we believe the company, despite the low absolute valuation, has much to prove before a stronger scenario can be priced in with confidence.

Axing Baxter and sharpening focus on the PAYDAY franchise

Ceasing Project Baxter from its pipeline will trigger a non-cash impairment of 255 MSEK in Q3’25 and a reduction of around 44 FTEs, leading to a leaner cost base going forward. Under the new strategy, PAYDAY becomes the core growth platform, with PAYDAY 3 (“PD3”) evolving into a more scalable live-engagement game through ongoing upgrades, refined player experience, sustainable monetization, and improved technical infrastructure. This focus is supported by two pillars: “Heisting Experiences” (expanding the PAYDAY universe through e.g. spin-offs and related projects) and “Special Operations” (selective work-for-hire providing steady cash flow and strengthening the brand). The plan to grow the PD3 team from ~20 to ~50 employees by the end of 2025 underlines how sharply the focus has narrowed to the franchise. Read our full comment on last week’s news here.

Removing Baxter and the 2028 title from our estimates

Following this news, we have removed Baxter and the previously expected 2028 title from our forecasts, which alone had a large negative impact on our estimates. These effects are somewhat mitigated by our increased revenue assumptions for the PAYDAY franchise, where we expect a unified operational and financial focus on the IP should support improved execution, monetization, and audience engagement. That said, we feel the long-term outlook is harder to gauge, given the timing of this shift and previous execution challenges in revitalizing player activity within, primarily, PD3. While cost cuts and lower investment needs somewhat offset the near-term earnings impact, Starbreeze’s long-term growth trajectory is now narrower and, in our view, more difficult to assess, warranting a more cautious stance at this point.

We stay on the sidelines for now

The shift away from becoming a multi-title studio removes some of the short-term triggers from our previous investment case. Despite the low absolute valuation (2025e EV: 149 MSEK, EV/S: 0.6x), we currently see limited near-term triggers. While the PAYDAY IP has a big potential, in our view, Starbreeze still has much to prove after recent years’ challenges with PD3. Our DCF now indicates a value per share of SEK 0.20 (was SEK 0.38), reflecting a scenario where we assume the company will operate with a leaner cost base, realizes a near-term boost in PAYDAY-related revenue through greater resource allocation, and continues securing work-for-hire projects similar in scope to the KRAFTON partnership. Over time, we expect PAYDAY-related revenue to gradually decline from a higher base, with new activities around the franchise providing modest support. However, given weaker short-term triggers and ongoing execution risks, we see limited justification for leaning too heavily on our DCF valuation, until visibility into PD3 performance improvement builds up. Lastly, due to the company’s low absolute valuation and recent operational streamlining, we also see that Starbreeze could become an increasingly relevant M&A target for a larger and better-capitalized industry player seeking to acquire proven IPs. However, we view such a scenario as speculative at this stage, albeit not implausible given the ongoing industry consolidation trend toward established franchises.