Upcoming Releases And Partnerships Will Expand Market Reach

Key Takeaways

• Strategic partnerships and diversification into new platforms are expected to drive player base growth and positively impact revenue and audience reach.
  
• Self-publishing and workforce optimization indicate improved net margins and long-term operational efficiency, supported by strong cash management and financial stability.
  
• Continued investments and strategic changes may impact short-term earnings and operational efficiency, while future success hinges on new releases and collaborations.

Catalysts

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

• Starbreeze's collaboration with KRAFTON to create a PAYDAY experience in the PUBG: Battlegrounds platform is expected to significantly increase the player base and introduction of new players, positively impacting future revenue.
  
• The release of Roboquest on PlayStation and continuous investment in existing games like PAYDAY 3 is likely to drive revenue growth and increase the gaming audience over more platforms.
  
• The upcoming game Baxter, planned for release in 2026, and the positive response to its demo indicate potential future revenue streams that will contribute to growth once the game is launched.
  
• The strategic shift towards self-publishing, ongoing investments in game development, and reducing workforce to focus on efficiency and cost structure suggest a positive impact on net margins and long-term operational efficiency.
  
• Starbreeze's strong cash position, limited debt, and the positive cash inflow from work-for-hire projects like the collaboration with KRAFTON are likely to decrease the burn rate and provide financial stability, ensuring the company can meet its strategic goals and potentially improve earnings.

Starbreeze Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Starbreeze's revenue will grow by 14.3% 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 -107.2% to the average SE Entertainment industry of 12.9% in 3 years.
• If Starbreeze's profit margin were to converge on the industry average, you could expect earnings to reach SEK 35.8 million (and earnings per share of SEK 0.02) by about April 2028, up from SEK -199.3 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 17.3x on those 2028 earnings, up from -1.4x today. This future PE is lower than the current PE for the SE Entertainment industry at 23.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Starbreeze Future Earnings Per Share Growth

Risks

• The company reported a loss after tax of SEK 49.2 million in the fourth quarter, driven by continued investments into games like PAYDAY and Baxter, which could impact short-term earnings.
  
• PAYDAY 3's revenue declined rapidly quarter-on-quarter, partly due to their strategy of releasing free updates to increase the player base, which could hinder revenue growth.
  
• The company had to make workforce reductions, primarily in the marketing and publishing organizations, which could affect the effectiveness of game promotion and potentially impact net margins.
  
• Starbreeze is evaluating the closure of some foreign entities to reduce costs, but this strategic realignment poses risks in terms of operational efficiency and revenue from international markets.
  
• The reliance on the success of future releases and collaborations like Baxter and the PAYDAY series, including a potential TV series or movie, presents execution risk and uncertainty in future revenue streams.

Valuation

• The analysts have a consensus price target of SEK0.345 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 SEK0.24.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK277.7 million, earnings will come to SEK35.8 million, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of SEK0.19, the analyst price target of SEK0.34 is 45.7% 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.