Self-publishing And Robust Pipelines Will Transform Digital Gaming

Key Takeaways

• Self-publishing and operational streamlining should drive stronger margins, recurring revenues, and improved capital efficiency as online gaming adoption grows.
  
• Diversifying with new projects and transmedia strategies reduces reliance on PAYDAY and supports long-term revenue and audience growth.
  
• Heavy reliance on one franchise, a thin project pipeline, and persistent financial instability increase Starbreeze's vulnerability to market shifts and industry competition.

Catalysts

Develops, publishes, and distributes PC and console games in Europe and North America.

• Starbreeze is now self-publishing PAYDAY 3 after acquiring full IP and publishing rights, enabling the company to capture 100% of future revenues and higher gross margins from the franchise, which should positively impact recurring revenues and net margins as digital distribution and online gaming adoption continue expanding.
  
• The PAYDAY franchise is seeing increased player retention and improving community sentiment due to key game updates, new modes, and upcoming major reworks; ongoing enhancements and a growing content pipeline align with rising demand for engaging, continuously updated online entertainment, supporting potential recurring revenue growth and longer game lifespans.
  
• The company is actively developing a robust work-for-hire pipeline and exploring strong publishing and platform partnerships for Project Baxter, diversifying revenue streams and reducing reliance on a single franchise, which is expected to improve overall earnings stability and support future top-line growth as the global audience for digital gaming expands.
  
• Operational streamlining-such as the recent organizational restructuring, key hires, closure of less profitable segments (third-party publishing), and stricter cost controls-is expected to drive improved operating leverage and lower direct costs going forward, providing a pathway to stronger net margins and better capital efficiency.
  
• The company's transmedia strategy for PAYDAY, with active interest from film/TV partners and a focus on community-driven development and early access for new IP, leverages digital transformation and interactive entertainment trends, potentially increasing user acquisition, engagement, and cross-platform monetization, thereby driving future revenue growth.

Starbreeze Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Starbreeze's revenue will grow by 16.8% annually over the next 3 years.
• Analysts are not forecasting that Starbreeze will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Starbreeze's profit margin will increase from -132.3% to the average SE Entertainment industry of 15.8% in 3 years.
• If Starbreeze's profit margin were to converge on the industry average, you could expect earnings to reach SEK 52.9 million (and earnings per share of SEK 0.03) by about August 2028, up from SEK -278.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from -1.1x today. This future PE is lower than the current PE for the SE Entertainment industry at 25.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.4%, as per the Simply Wall St company report.

Starbreeze Future Earnings Per Share Growth

Risks

• Starbreeze's heavy strategic focus and investment in the PAYDAY franchise exposes it to franchise fatigue and significant revenue volatility if future sequels or updates underperform or fail to sustain player interest, threatening both long-term revenue growth and earnings stability.
  
• The company's decision to exit third-party publishing and concentrate on a limited core portfolio-including a new, unproven IP (Baxter) with a 2026 release-results in a thin development pipeline, increasing vulnerability to project delays or commercial failures, which could materially impact future revenues and cash flows.
  
• Despite recent organizational restructuring and cost-cutting, Starbreeze continues to report losses after tax and requires ongoing, substantial investment in game development (SEK 105 million in 6 months); historical financial instability and persistent net losses suggest continued risk to net margins and shareholder returns if key titles do not deliver strong, sustained performance.
  
• Ongoing heavy dependency on a work-for-hire business model for near-term revenue introduces risk should such projects dry up or if Starbreeze fails to win new contracts in a competitive market, potentially causing fluctuations and pressure on revenue and profitability.
  
• Escalating industry development costs and increasing dominance of mega-publishers may make it harder for smaller studios like Starbreeze to compete for talent, reach, and partnership opportunities, jeopardizing the company's ability to maintain gross margin levels and limit downside risk in a consolidating industry landscape.

Valuation

• The analysts have a consensus price target of SEK0.335 for Starbreeze 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 SEK0.45, and the most bearish reporting a price target of just SEK0.22.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK335.1 million, earnings will come to SEK52.9 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of SEK0.18, the analyst price target of SEK0.34 is 46.0% 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.