Starbreeze Q3’24 preview: Player activity remains subdued

Starbreeze will release its Q3 2024 results on Thursday, November 14. During and after the quarter, the company has released additional PAYDAY 3 (“PD3") content (DLC 3 and 4), introduced gameplay improvements (e.g. CrimeNet server browser, VOIP, a revamped UI), and addressed community feedback. These updates have positively impacted recent reviews, now rated as “Mostly Positive.” However, while the latest updates have temporarily boosted engagement, overall player numbers remain low and below PAYDAY 2 (PD2) levels. We expect Q3 revenue to remain at a low level with challenging y/y comparisons due to the timing of the PD3 launch last year. We also expect cash flow pressures in the quarter and will look for management’s commentary on the financial outlook as well as insights into the ongoing development of Project Baxter in the Q3 report.

Modest q/q revenue gains coupled with a stable cost base are expected to strain cash flow

Following several content updates and overall game enhancements throughout the year, PD3 has shown improvement in player sentiment and ratings. September saw the game’s rating improve from “Mostly Negative” to “Mixed,” with recent reviews further elevating to “Mostly Positive.” The Houston Breakout (DLC 3) and Fear and Greed (DLC 4) releases initially spiked player numbers but saw engagement revert shortly afterward.

We estimate Q3 net sales at 43 MSEK, a 7% q/q increase (Q2 2024: 40 MSEK), driven primarily by new content releases for PD3. We expect PD3 revenue to reach 29 MSEK (Q2 2024: 22 MSEK), while PD2 sales are projected to decline to 7 MSEK (Q2 2024: 9 MSEK) due to reduced player engagement. Additionally, we anticipate third-party publishing revenue to drop by approximately 3 MSEK q/q to 6 MSEK as the initial launch momentum for Roboquest continues to wane.

As Starbreeze continues its investments in PD3 while simultaneously advancing Project Baxter toward its planned 2026 launch, we anticipate a relatively unchanged cost base q/q. The slight revenue increase expected in Q3 is expected to support modest improvements in the operating result, with Q3 EBIT estimated at -63 MSEK (Q2’24: -71 MSEK). The positive working capital effects experienced from the collection of PD3-related receivables from PLAION in previous quarters are expected to further diminish, and we anticipate cash flow pressures in Q3 due to negative earnings and sustained investment levels.

We will be looking for clues on PD3’s 2025 outlook and the current state of Project Baxter

Many of the features players missed at PD3's launch last year have been gradually added throughout 2024, along with general improvements and bug fixes, putting the game in a significantly better state today.

At the start of the year, the average concurrent player count (CCU) was around 600 and over the last 30 days, it has modestly grown to approx. 1,000 according to Steam data. While player sentiment has turned more positive and CCU shows a slight upward trend, Starbreeze had likely hoped for stronger results. The company has announced a second year of content for PD3, and we will closely monitor their 2025 strategy to gauge how updates might foster a larger, more consistent player base.

To significantly boost player activity in 2025, we believe Starbreeze will likely need to accelerate DLC releases to add depth quickly and/or launch a targeted campaign to attract PD2 fans, new players, and former PAYDAY fans. However, this would require continued high investments, which could be hard to justify given current player activity levels after a year of efforts.

Additionally, Project Baxter has been in full production since Q2’24, and any updates on its development status, including potential partnership discussions, will be of interest in the report.

We expect revenue to gradually improve for the remainder of 2024, but the 2025 outlook is more sour

Our FY2024 revenue estimates remain unchanged at 186 MSEK (FY2023: 634 MSEK) with an adjusted EBIT estimate of -236 MSEK (FY2023: 190 MSEK). However, the removal of PD3 from the Game Pass platform in mid-September adds further uncertainty to Q4 and beyond, as its absence from Game Pass may result in reduced player engagement. While this, on the other hand, could drive an increase in direct sales, it may also weaken PD3’s multiplayer ecosystem, as lower accessibility could diminish the active player count further. The net effect will depend on how these factors balance out in the coming months.

While Starbreeze’s investments in PD3 have led to notable improvements in the game itself, player engagement remains relatively muted. Our outlook for 2025 remains cautious, and we expect PD3 sales will likely face further headwinds in the next year. We see 2025 as a transitional year, with Starbreeze preparing for more substantial revenue growth in 2026 with the anticipated launch of Project Baxter. Starbreeze’s ongoing high investment levels, coupled with lower expected revenues, will likely place further strains on cash flows in 2025. This may necessitate external financing or other financing support to sustain Project Baxter’s development, especially if PD3 fails to generate a meaningful recovery.