Paradox Interactive Year-End Report (Revenue up 34%, Profits down 26%, Cities: Skylines II sells 1 million)

[TheSilentWombat]

Fourth Quarter​

• Revenues amounted to MSEK 995.6 (MSEK 580.0), an increase by 72 % compared to the same period last year.
• Operating profit amounted to MSEK 123.9 (MSEK 244.5), a decrease by 49 %. Write-downs of MSEK 175.8 (MSEK 0.0) are included in the operating profit.
• Profit after financial items amounted to MSEK 131.3 (MSEK 244.2), and profit after tax amounted to MSEK 98.3 (MSEK 194.2).
• Cash flow from operating activities amounted to MSEK 525.5 (MSEK 344.2), and cash flow from investing activities amounted to MSEK -146.6 (MSEK -251.7).
• By the end of the period cash amounted to MSEK 1,098.0 (MSEK 747.5).
• Earnings per share before dilution amounted to SEK 0.93 (SEK 1.84) and after dilution SEK 0.93 (SEK 1.84).
• Revenues in the quarter are mainly attributable to Cities: Skylines II, Crusader Kings III, Hearts of Iron IV, The Lamplighters League and Stellaris.

Important Events in the Fourth Quarter​

• Cities: Skylines II, developed by Colossal Order, was released to PC.
• The Lamplighters League, developed by Harebrained Schemes, was released to PC and Xbox series X|S. After revised sales forecasts, it was decided to write down the game's remaining balanced development cost. The game's impact on profit before tax is MSEK -250.4 in the period.
• Star Trek: Infinite, developed by Nimble Giant Games Entertainment, was released on PC.
• New downloadable content was released to games during the period; Arms Against Tyranny to Hearts of Iron IV, Legacy of Persia to Crusader Kings III, King of Kings to Europa Universalis IV, Astral Planes to Stellaris, Empire & Ashes to Age of Wonders 4, Colossus of the South to Victoria 3, and Amelia the Queen to Across the Obelisk.
• Stellaris Nexus and Space Trash Scavenger were released in Early Access.
• Harebrained Schemes and Paradox decided to part ways at the turn of the year.
• The Board proposes a dividend of SEK 3.00 (SEK 2.00) per share.

Full Year 2023​

• Revenues amounted to MSEK 2,642.1 (MSEK 1.972.9), an increase by 34 % compared to the same period last year.
• Operating profit amounted to MSEK 657.9 (MSEK 887.1), a decrease by 26 %. Write-downs of MSEK 185.4 (MSEK 0.0) are included in the operating profit.
• Profit after financial items amounted to MSEK 687.7 (MSEK 884.4), and profit after tax amounted to MSEK 530.6 (MSEK 708.7).
• Earnings per share before dilution amounted to SEK 5.02 (SEK 6.71) and after dilution SEK 4.99 (SEK 6.70).

Subsequent Events​

• The new game Prison Architect 2, developed by Double Eleven, was announced.

Comment by the CEO​

2023 has been a year during which we’ve reached many milestones. We set a new revenue record, in the full year and in the quarter, we have stably more than six million players and we end the year with a very strong financial position. At the same time, we’re unable to relax. EBIT is at a level we are not happy with after a large write-down, and the quarter's game releases have not held the quality we want. There is certainly potential to reach even higher.

Source: https://www.paradoxinteractive.com/investors/financial-reports/year-end-report-january-december-2023

 

[TheSilentWombat]

I also watched their video report and Q&A here and have some additional comments based on that and my own views

• Revenue is a new record by a decent margin, but profits and margins are down. High revenue is because they had multiple releases this quarter as well as DLC for all their games. Lower profits are attributed to the failure of The Lamplighter League as well as heavy spend on upcoming releases like Prison Architect 2 and Life by You. Expenses are up over double, mostly due to cost of goods. Royalties are also a factor as many of the games this quarter are developed by external developers. They also mention being disappointed with the quality of their releases, something the community has been quite vocal about.
• Cities Skylines II specifically sold 1 million units in its release quarter, which is about 2 months. The first game did that in just one month, so it seems that the aforementioned quality problem impacted its sales (read more about the first game here in this shameless plug).
• Not directly related to their financials, but Paradox is also making a 4X game similar to Civilization called Millenia in their ongoing attempt to usurp every PC-focused gaming franchise. It doesn’t have a release date yet, but it does have a demo available the next week, and based on what I played it seems like it could have some strong potential, but we’ll have to wait and see.
• Stock is up slightly, despite the decrease in profit that big increase in revenue and promise of higher margins in future quarters seems to be enough for investors.

 

[ILikeFeet]

announcing that the game runs like doo doo would cause an expected drop.

• Not directly related to their financials, but Paradox is also making a 4X game similar to Civilization called Millenia in their ongoing attempt to usurp every PC-focused gaming franchise. It doesn’t have a release date yet, but it does have a demo available the next week, and based on what I played it seems like it could have some strong potential, but we’ll have to wait and see.

this is like the third Civ styled game in the last couple of years. what is going on

 

[TheSilentWombat]

this is like the third Civ styled game in the last couple of years. what is going on

The franchise has sold over 68 million copies as of Take Two's last financial report and everyone wants a piece of that pie, especially since Civ is currently between games. Humankind was the last big attempt at a Civ-like and was a failure so it is tough, but worth attempting for these publishers.

 

[ILikeFeet]

The franchise has sold over 68 million copies as of Take Two's last financial report and everyone wants a piece of that pie, especially since Civ is currently between games. Humankind was the last big attempt at a Civ-like and was a failure so it is tough, but worth attempting for these publishers.

I know all that, I'm just wondering what sparked publishers to try (again) all at the same time, lol.

like they all collectively woken up

 

[TheSilentWombat]

I know all that, I'm just wondering what sparked publishers to try (again) all at the same time, lol.

like they all collectively woken up

At least with the developers of Humankind they had previous experience with making sci-fi 4X games so trying to do something closer to Civ. Also, I kinda of feel like after the success of Cities: Skylines Paradox has decided to make usurping games part of their business model. Between this and Life by You they seem eager to try to make what happened with Cities: Skylines happen again. That might have also had a broader impact on publishers seeing that these franchises aren't immune from being overtaken if they can release a game at the right moment.

 

[Celestial]

I still can’t believe they gutted Harebrained before the release of Lamplighters and then cut them loose in the current environment. And the fact that when Paradox bought them, they didn’t let HBS just continue with their existing tech pipeline in place to make another Battletech game that was already a million seller.

Such a waste of a studio.

 

[AruanaRiva]

only selling 1m is such big miss step from Cities Skylines 2. It is such huge success for first one but hot damn. The second release is sooo busted on launch and end up damaging all fans good will immediately.