Embracer prioritizing 'controlled key IPs' to improve profitability of PC and console releases

Perennial spender turned layoff merchant Embracer Group says its plan to transform into three standalone businesses is on track, but feels there's room for improvement in some areas.

In its fiscal report for the first quarter ended June 30, 2024, the Swedish conglomerate indicated it must improve profitability within its PC / Console Games segment by focusing on its "own and controlled key IPs, which typically have better unit economics." That comes with net sales in the unit decreasing by 34 percent year-over-year to SEK 2.65 billion ($253.2 million).

Elsewhere, Mobile Games net sales decreased by 3 percent to SEK 1.39 billion. Tabletop Games net sales fell by 5 percent to SEK 3.04 billion, and Entertainment & Services net sales tumbled by 54 percent to SEK 848 million.

Combined, those downturns resulted in consolidated net sales falling by 24 percent to SEK 7.9 billion ($754.8 million) across Q1. Adjusted EBIT totaled SEK 0.8 billion ($76.4 million). Pro forma net debt stands at SEK 14.3 billion ($1.36 billion).

Embracer CEO Lars Wingefors said performance is "in line with management expectations," and highlighted "growing profitability year-on-year in both the Mobile and Tabletop segments." He claimed performance was "softer" in PC / Console and Entertainment & Services due to "lower release activity."

"Due to a lack of notable new releases and a tough comparison from the successful release of Dead Island 2 in the corresponding quarter last year, the organic growth in the PC/Console Games segment was -30 percent in the quarter," he added.

"Excluding the release of Dead Island 2 in the comparison quarter, the organic growth was 15 percent in Q1. The 5 percent adjusted EBIT margin is impacted by amortization of releases with low ROI from the past 24 months. The new content that came out for Deep Rock Galactic, Remnant II and Dead Island 2 performed well in line with management expectations."

Embracer is still attempting to steady the ship after enacting a colossal restructuring program that resulted in studio closures and divestments, project cancellations, and mass layoffs. Highlighting the scale of that upheaval, the number of game projects in development has dropped to 127 from 215 in the space of 12 months. The company's total headcount has also fallen to 10,844 employees from 16,605 employees over the past year.

Looking ahead, Wingefors said he remains "confident" in Embracer's release pipeline for the financial year, and indicated the company will be able to deliver higher quality titles thanks to an "updated capital allocation process" that will enable "new and continued investment."

"We are confident in our pipeline for the financial year, and still expect the value of completed game development for the year to be around SEK 3.9 billion. Our teams are committed to making and delivering better games," continued Wingefors.

"Our highly anticipated game Kingdom Come: Deliverance II, is now confirmed for global release on February 11, 2025, which we believe enables some final polish and a better release window. We look very much forward to Gamescom next week to share more details about this game and other titles."