Starbreeze Q4’24 flash comment: PD3 revenue clearly below our expectations

Starbreeze’s Q4 revenues and EBIT largely aligned with our expectations, with revenue coming in slightly higher, though this was solely due to earlier-than-expected contributions from the KRAFTON partnership. In addition, PD3 revenue fell clearly short of our estimates, and management provided no concrete details on a 2025 roadmap to address the game’s persistently low player activity. Meanwhile, Starbreeze appears to be making progress in industry discussions with potential partners for Project Baxter, though no definitive agreements have been reached yet.

PD3 revenue fell short of estimates, while third-party publishing surprised on the upside

Starbreeze’s Q4 revenues amounted to 46.4 MSEK (Q3’24: 43 MSEK), slightly exceeding both the previous quarter and our estimates. However, compared to the same period last year (Q4’23: 69 MSEK), revenue declined by 33%, reflecting the timing of PD3’s launch in H2’23. In Q4, revenue from PD3 decreased by some 8 MSEK quarter-on-quarter to 14.7 MSEK (Q3’24: 23 MSEK), while PD2 revenue decreased by about 1 MSEK (q/q) to 10.3 MSEK (Q3’23: 11.5 MSEK) and third-party revenue increased by 9 MSEK to 15.4 MSEK (Q3’24: 6 MSEK). Additionally, Starbreeze received 5 MSEK from its work-for-hire agreement with KRAFTON. While the overall revenue figure was largely in line with expectations, the revenue mix contained some surprises. The quarter-on-quarter decline in PD3 revenue was sharper and earlier than anticipated, suggesting potential downside risk to our 2025 estimates. On a more positive note, third-party publishing revenue clearly outperformed our expectations, with Roboquest delivering a strong quarter. Furthermore, we had not factored in any impact from the KRAFTON partnership in Q4, which ultimately accounted for the higher-than-estimated revenue for the quarter.

EBIT aligned with our estimates

Starbreeze reported a Q4 operating loss (EBIT) of -52 MSEK (adj. Q3’23: -63 MSEK), aligning with our expectations. The quarter-on-quarter improvement was driven by higher revenue, lower SG&A costs, and reduced amortization (Q4’24: 65 MSEK, Q3’24: 70 MSEK). However, the amortization level was higher than our estimates (Inderes est. 57 MSEK), as we had anticipated a faster reduction in amortization regarding game development. However, we still expect amortization levels to come down significantly in Q1’25 and onwards (until the 2026 release).

Cash flow from operating activities after WC changes was -0.3 MSEK and investments for the quarter totaled 66 MSEK, leading to a free cash flow of -66 MSEK (Q3’24: -81 MSEK). Starbreeze received 17 MSEK in game development financing during the quarter, and its cash balance stood at 192 MSEK at the end of Q4 (Q3’24: 249 MSEK), with virtually no debt. While the cash decline this quarter was anticipated and the current cash position remains at a high level, a continued low level of PD3 activity may erode cash further in the coming quarters. However, the KRAFTON partnership will offset this somewhat through steady revenue streams for the company during 2025, enabling Starbreeze to reduce the cash burn for the current year. A partner deal regarding Baxter would also alleviate cash flow pressures, likely at the expense of revenue potential.

No concrete roadmap for PD3’s second year was shared in the report

The management did not provide any sort of 2025 roadmap for PD3 in the report but rather continued to emphasize that the PAYDAY franchise remains central to the company’s strategy and its most important asset. Regarding Project Baxter, Starbreeze informed us that the company has had in-depth conversations and game tests with potential partners, with positive response.

Our broader outlook for PD3 remains unchanged, as we continue to view a significant resurgence in player base and revenue as unlikely. Instead, we anticipate revenue to decline in 2025 and beyond. A shift in this perspective would require a substantial and sustained increase in player engagement over an extended period.

However, the KRAFTON partnership helps mitigate the short-term financial risks we had anticipated would come from a continued weak PD3 performance in 2025 by securing additional cash flows. On the other hand, we believe that the reduced developer stack heading into 2025 is unlikely to improve PD3’s turnaround prospects, if anything, it may further reinforce our current outlook. That said, since our base estimates do not assume a major turnaround, the improved financial stability is a welcome move, providing a stronger foundation for the 2026 release. Nonetheless, this places significant pressure on Project Baxter to deliver a successful launch.