Paradox Interactive Interim Report January – September 2023 (Revenue Up 18% YoY, Operating Profit Down 17% YoY)

[TheSilentWombat]

Source: https://www.paradoxinteractive.com/investors/financial-reports/interim-report-january-september-2023

Third Quarter

• Revenues amounted to MSEK 426.4 (MSEK 458.0), a decrease by 7 % compared to the same period last year.
• Operating profit amounted to MSEK 85.4 (MSEK 220.6), a decrease by 61 %.
• Profit after financial items amounted to MSEK 88.5 (MSEK 219.5), and profit after tax amounted to MSEK 69.3 (MSEK 175.9).
• Cash flow from operating activities amounted to MSEK 260.1 (MSEK 242.3), and cash flow from investing activities amounted to MSEK -359.1 (MSEK -151.4). Investing activities include MSEK -198.1 (0.0 MSEK) of short-term investments in bonds.
• By the end of the period cash amounted to MSEK 734.9 (MSEK 665.9).
• Earnings per share before dilution amounted to SEK 0.66 (SEK 1.67) and after dilution SEK 0.65 (SEK 1.67).
• Revenues in the quarter are mainly attributable to Cities: Skylines, Crusader Kings III, Europa Universalis IV, Hearts of Iron IV and Stellaris.

Important Events in the Third Quarter

• New downloadable content was released to games during the period; Wards & Wardens to Crusader Kings III, Dawn of Wonder to Victoria 3, and Sands of Ulminin to Across the Obelisk.

First Nine Months 2023

• Revenues amounted to MSEK 1,646.5 (MSEK 1,392.9), an increase by 18 % compared to the same period last year.
• Operating profit amounted to MSEK 534.0 (MSEK 642.7), a decrease by 17 %.
• Profit after financial items amounted to MSEK 556.5 (MSEK 640.2), and profit after tax amounted to MSEK 432.4 (MSEK 514.5).
• Earnings per share before dilution amounted to SEK 4.09 (SEK 4.87) and after dilution SEK 4.06 (SEK 4.86).

Subsequent Events

• The new game The Lamplighters League, developed by Harebrained Schemes was released for PC and console. After revised sales forecasts, it was decided to write down the game's capitalised development by MSEK 171 in addition to amortisation according to plan. The game's impact on profit before tax for the fourth quarter is estimated to amount to MSEK -248.
• The new game Cities: Skylines II, developed by Colossal Order, was released for PC.
• The new game Star Trek: Infinite, developed by Nimble Giant Entertainment, was released for PC.

Comment By CEO

As we often point out, our quarters have significant variations depending on releases. The third quarter of the year is an example of that, as it has been one of our thinnest quarters on the release side in a long time. At the same time, we've focused a lot on the future. Despite this, the revenue is at a reasonable level and was mainly driven by back-catalogue sales and sales activities during the quarter. Costs are at a somewhat higher level than usual, largely driven by marketing of upcoming games. Overall, it results in a profit that is lower than what we are used to.

Fredrik Wester, CEO of Paradox Interactive

Notable Graphs and Financial Information from the Report

 

[TheSilentWombat]

One of the notable events that happened just after this quarter worth mentioning was the release of The Lamplighters League which did quite poorly and resulted in Paradox divesting themselves from the developer Harebrained Schemes. According to this report it will have a -248 MSEK or around 22 million USD negative impact on profit next quarter which is quite severe, although Cities Skylines II should help cushion that blow.

 

[KR_EP]

3) Bake cookies for them.​

Paging Greedy Granzella. Needs more Disaster Report style responses. Speaking of Greed, The Last of Us Part PC Strategy aka Surviving the Aftermath developed by Iceflake Studios (part of Paradox Interactive as of July 17, 2020) is currently free on Epic Games Store although if you really wanted to save humanity by helping survivors & rebuild civilisation you'll buy the DLC!

One of the notable events that happened just after this quarter worth mentioning was the release of The Lamplighters League which did quite poorly and resulted in Paradox divesting themselves from the developer Harebrained Schemes. According to this report it will have a -248 MSEK or around 22 million USD negative impact on profit next quarter which is quite severe, although Cities Skylines II should help cushion that blow.

TLDR: Dysfunctional organisations doing really dysfunctional things. Speaking of Harebrained Schemes, acquire a compamy, move them away from successful licenses onto new IP, sign a Gamepass deal then act surprised when it doesn't put up major sales figures. Oh did I forget to mention firing the majority of staff over the summer & then acting surprised when the game launches in a less than ideal state which is picked up on & apart by reviewers & early adopters before throwing both game & remaining developers overboard. FUCCCCK YOUUUUU.

Thankfully the studio is able to continue independently in 2024 & will be -- you guessed it-- Surviving the Aftermath! YEAAAAAAAAAAAHHHHHHH.​

As for the admission that its major title is not ready for primetime yet releasing it anyway, there are no words except...there are cause people can read your Sales Story on Tuesday! Timely reminder of another company that allowed hubris to be the downfall of its Babylonian Sim City although there's no rival waiting in the wings to snatch the audience from Colossal Order of the Day. But that's a discussion for another Sales Story day, wanna go over review what has gone right & wrong for Paradox Interactive post-IPO expansion into non-GAAS Arc.

Finding the Paradox games of tomorrow​

There are great up and coming developers out there who share our love for deep, endlessly replayable experiences. Small studios that create games which capture the Paradox DNA. Our mission is to find them, and share them with you, the most engaged players in the world.​

The problem here is similar to other companies (like Frontier Development & its now closed Foundry subsidiary, with Deliver Us Mars the next free game on EGS) is the failure to establish they appeal to different audiences. Not the games themselves as The Lamplighters League is a cool looking game, makes me think of what the studio could do with a new Metal Gear AC!D with stealth taking place in real-time only for the game to switch to turn based once spotted or during boss encounters that function like puzzles to solve how to overcome them. I want it! But I digress! My point is the Paradox Arc sub-label line up is being defined by external studios, size & project scale, not the kind of games or how they clearly differ from the GAASy ASS Paradox Interactive.

Main Label - GAAS (Crusader Kings, Stellaris, Victoria)
Sub Label - non-GAAS (Tyranny, The Lamplighters League + non-GAAS titles published under the Paradox Arc initiative)

If it was clearly set up as a non-GAAS publishing sub-label, it could've been used for games like Tyranny & --yes-- The Lamplighters League. This would enable people to understand there is a marked difference between them so that you could know what the game is & what it does or does not offer post-launch. The lack of clarity in purpose from senior management has led to this avoidable (& unacceptable) outcome in which the developers (what else is new) are made to suffer for the mistakes of those who continue to be employed & well paid.

(Note: Main label & sub-label is my own albeit based on a flawed premise as technically EA (Electronic Arts, EA Sports, EA Originals) & Take2 (2K, Rockstar & Private Division) by ‘technically’ I mean actually have 3 labels but shhhh, don't let pesky facts get in the way of a good hobbyhorse to flog to death like a mixed metaphor broken record soap-box thingie!).