Paradox Interactive Interim Report January – June 2024 (Revenue down 22%, Operating Profit Down 90% due to Life by You Write Down)

[TheSilentWombat]

Second Quarter

• Revenues amounted to MSEK 575.8 (MSEK 737.3), a decrease by 22 % compared to the same period last year.
• Operating profit amounted to MSEK 28.9 (MSEK 292.9), a decrease by 90 %. Write-downs of MSEK 208.0 (MSEK 0.0) are included in the operating profit.
• Profit after financial items amounted to MSEK 36.8 (MSEK 310.9), and profit after tax amounted to MSEK 27.3 (MSEK 239.4).
• Cash flow from operating activities amounted to MSEK 399.5 (MSEK 421.6), and cash flow from investing activities amounted to MSEK -81.2 (MSEK -172.5). Cash flow from investing activities includes a positive effect of MSEK 70.0 (MSEK 0.0) from sales of short-term investments in bonds.
• By the end of the period cash amounted to MSEK 1,164.2 (MSEK 844.2).
• Earnings per share before dilution amounted to SEK 0.26 (SEK 2.27) and after dilution SEK 0.26 (SEK 2.24).
• Revenues in the quarter are mainly attributable to Age of Wonders 4, Crusader Kings III, Hearts of Iron IV, Stellaris and Victoria 3.

Importants Events in the Second Quarter

• Foundry, developed by Channel 3 Entertainment, was released to PC in Early Access.
• New downloadable content was released to games during the period; The Machine Age to Stellaris, Eldritch Realms to Age of Wonders 4, Sphere of Influence to Victoria 3, Winds of Change to Europa Universalis IV, The Obsidian Uprising and Nenukil, The Engineer to Across the Obelisk.
• The release of Life by You, developed by Paradox Tectonic, was cancelled, which led to a write-down of all capitalised development costs of MSEK 208.0.

First Six Months

• Revenues amounted to MSEK 1,057.9 (MSEK 1,220.1), a decrease by 13 % compared to the same period last year.
• Operating profit amounted to MSEK 183.3 (MSEK 448.6), a decrease by 59 %.
• Profit after financial items amounted to MSEK 201.8 (MSEK 468.0), and profit after tax amounted to MSEK 154.1 (MSEK 363.1).
• Earnings per share before dilution amounted to SEK 1.46 (SEK 3.44) and after dilution SEK 1.46 (SEK 3.41).

Comments by the CEO

We end the second quarter of the year with mixed feelings. On the one hand, our core business has performed very well, but on the other hand, we made the difficult decision to cancel the release of Life by You, as the game would not be able to meet our expectations.

Looking at the quarter's results, we’ve released several strong expansions with good quality to our core games, which has a positive impact on the top line and provides a good cash flow from operating activities. The bottom line is sadly weighed down by the write-down of Life by You. It is painful but gives us a strong motivation to further improve our operations.

Graphs and Charts

 

[TheSilentWombat]

Once again providing some additional info based on the investor video and my own views.

• The big thing is the profit fall, which is almost entirely due to the cancellation of Life by You, without it their profit margins would have been the same as the second quarter of last year.
• Their revenue and cash flow are still strong though, this is their fifth-best quarter ever for revenue and is down over last year mostly due to fewer releases.
• Quality control and project management are still areas they are working on. There is a lot of talk in the investor video about showing off and releasing games when they are ready, which makes sense considering this has been at the core of their recent troubles.
• There was an interesting question about a Paradox subscription service, due to the Paradox games on Gamepass and their DLC subscriptions for individual games, but the CEO dismissed the idea as not something they were considering.
• Another question he did express more interest in was acquisitions. With no debt and a lot of cash flow, as well as the general state of the industry the idea of acquisitions is continuing to show up in these investor reports so perhaps we will see some movement on that soon.
• Stock is up 6%, so investors seem pleased with the results despite how the numbers initially look.

 

[tentacle-tropes]

It is concerning they can’t find stable footing outside their strengths however at this point probably need to get those ducks in order first before anything else. Their release model also hasn’t been great which has lead to some big duds lately. Like how do you mess up the Star Trek license when it plays completely to your strengths.

 

[Gimmick]

It's so odd to see games being canceled when they are just about done, I assume that they planned a lot of post-release content with Life by You that wasn't worth it.

Or it simply was so broken that they needed over a year to polish it, and it wasn't worth the continued dev cost.

 

[master94ga]

It's so odd to see games being canceled when they are just about done, I

It wasn't nowhere near a release, it was close to early Access.

 

[EnergyDrink]

I am puzzled by how this publisher could survive after releasing a game like Cities Skylines 2 in such a broken state. For me, this was the tipping point where I decided never to buy a game published by Paradox again.

 

[Robjoh]

I am puzzled by how this publisher could survive after releasing a game like Cities Skylines 2 in such a broken state. For me, this was the tipping point where I decided never to buy a game published by Paradox again.

Steady flow of money from their grand strategy GAAS titles. I mean they are still getting money from EUIV, that title I played at launch and that must be 10 years ago....

And grand strategy is a genre they are the main player.

 

[Gimmick]

It wasn't nowhere near a release, it was close to early Access.

Thats a release, it was set for june initially.