Web Shops And Cost Optimization Will Support A Stronger Long Term Earnings Profile

Catalysts

About Stillfront Group

Stillfront Group is a global gaming company focused on free to play titles operated through regional business areas and key franchises.

What are the underlying business or industry changes driving this perspective?

• Rollout of web shops and higher direct to consumer revenue share, which was 44% in Q3 2025 compared with 33% a year earlier, is reducing platform fees and is already reflected in gross margin of 83%. This supports future net margins and earnings resilience.
• Shift in focus from broad user acquisition to disciplined, profitability focused spend, particularly in North America, is lowering UAC as a share of SEK 1,373 million in net revenue. This is already visible in the 32% adjusted EBITDA margin and can support future earnings quality.
• Ongoing investment in key franchises and new titles in Europe, such as Big Farm: Homestead, Warhammer 40,000 on Supremacy and Unfolded: Webtoon Stories, positions Stillfront to capture ongoing demand for established IP and live service games, with potential to support revenue over time.
• Growth in MENA and APAC key franchises like Jawaker and the Board Ludo franchise, combined with historically low UAC intensity in these regions, provides room to carefully increase marketing where returns are attractive. This can influence revenue while maintaining strong adjusted EBITDAC margins, currently at 57% in that business area.
• Completion of the cost optimization program ahead of schedule and ongoing deleveraging, with net debt reduced to SEK 5.1b and leverage at 2.06x EBITDA, give the company more flexibility over future capital allocation. This can affect free cash flow and net income through lower financing costs.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Stillfront Group's revenue will decrease by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -112.9% today to 17.6% in 3 years time.
• Analysts expect earnings to reach SEK 1.0 billion (and earnings per share of SEK 1.99) by about January 2029, up from SEK -7.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK1.7 billion in earnings, and the most bearish expecting SEK455.4 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 6.4x on those 2029 earnings, up from -0.4x today. This future PE is lower than the current PE for the SE Entertainment industry at 12.5x.
• Analysts expect the number of shares outstanding to grow by 3.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Group net revenue declined by 14% year on year to SEK 1,373 million, with a 7.8% organic decline and a 6% foreign exchange headwind. If this pressure on the top line continues while user acquisition stays constrained, it could limit the company’s ability to grow revenue and, over time, constrain earnings.
• North America remains the main drag, with revenues of SEK 246 million that are 32.9% lower year on year and management expecting the decline to continue into Q4. If the turnaround in this region stalls or key franchises fail to improve, the ongoing volume contraction could weigh on group revenue and eventually on EBITDAC and earnings despite current cost cuts.
• Europe has only just returned to growth with net revenue of SEK 643 million and 0.6% growth, and management itself flagged that organic growth in Q4 might be weaker and that performance depends heavily on user acquisition and new game launches. If new titles like Big Farm: Homestead, Warhammer 40,000 on Supremacy and Unfolded: Webtoon Stories underperform over the longer term, that could cap revenue growth and pressure margins.
• The business has benefited from lower user acquisition costs and a cost optimization program that lifted adjusted EBITDAC to SEK 436 million and a 32% margin while net revenue declined. Once the major cost savings are largely realized and management starts to reinvest more aggressively, margins and free cash flow could come under pressure if that spend does not translate into durable revenue and earnings growth.
• MENA and APAC currently show strong key franchise growth and a 57% adjusted EBITDAC margin on SEK 276 million, yet this region has low user acquisition intensity and management sees room to increase spend over time. If higher marketing and product development in these markets fail to sustain double digit growth in titles like Jawaker and the Board Ludo franchise, the region’s high profitability could erode and pull down group margins and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of SEK8.9 for Stillfront Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK12.0, and the most bearish reporting a price target of just SEK6.6.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be SEK6.0 billion, earnings will come to SEK1.0 billion, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of SEK5.32, the analyst price target of SEK8.9 is 40.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.