I am pleased to see that the operating groups are initiating an increased number of potential acquisitions. During the quarter we added eight new companies to the operative groups. The Embracer strategy to build a truly independent eco-system based on committed entrepreneurs and developers that share the same ambitious long-term mindset. I’m a firm believer in giving great people trust to make their own decisions. The M&A market is more active than ever and the past three months we have actively been engaging with more than 100 entrepreneurs who want to be part of the Embracer family, including a dozen sizable businesses that has the potential to create new operative groups under the parent company. We patiently and disciplined continue to execute our M&A strategy across the group.
Ja kun puhutaan desentralisoidusta mallista, Embracerilla on kuusi operatiivista yksikköä, joista johonkin nuo ostettavat kohteet sijoittuvat. Tarkkaan harkittu toimintamalli.
The announced Acquisitions are aligned with Embracer’s growth strategy and is enabled by the group’s decentralized operating model. Over the past three years, Embracer has expanded from one to six operating units. Each of these operating units have put in place their own M&A agenda with the purpose of adding additional organic growth opportunities and to improve long term profit and cash flow generation. For Embracer’s decentralized operating model to be sustainable and scalable, it is a necessity that most acquisitions are originated and onboarded on the operating unit level. For the Embracer operating model with emphasis on decentralized decision making and independence for local management to work, it is also necessary that founders and management of acquired companies join Embracer with a long-term mindset.
Fortunately, such subjective opinions don’t affect business. There are a few billion mobile gamers, so I guess those players know what they like to play and where to put their money. The most important thing in these acquisitions is to find good teams. Not having a good track record yet doesn’t mean the team isn’t good with better funding and visibility. There’s a lot of upside in these purchases.
Reputable independent game studios with known game catalogs are hardly left. For the rest, the price tag is really big.
That’s how it is, Embracer’s strategy regarding acquisitions is clear and the mobile game market is almost limitless. I’m not trying to start an argument here, I just shared my opinion as a player. I have by no means claimed that Embracer should only acquire AAA game companies.
Of course, from an investor’s perspective, I want all profits to be maximized and money to be squeezed out from wherever it yields the most.
That’s a crazy pace for acquisitions, though. Today, the Swedish colleagues will have their Excels smoking again as they update their models with the latest acquisitions.
As stated in the podcast, with Embracer you get a widely diversified game portfolio, which includes bad, mediocre, and good game IPs. The company has historically created enormous value through acquisitions, and the pace seems to be accelerating. However, as the company grows, it always has to find bigger or more targets to acquire, which personally makes me a bit nervous as an outsider, keeping in mind the risks associated with acquisitions. Of course, broad diversification across several studios reduces the risk associated with a single deal.
I personally prefer stories of organic growth, but as Embracer’s history shows, acquisitions can create significant value in a relatively short time. Embracer is on my watchlist, and I don’t rule out the possibility that the company might one day slip into my own “diversified game company retirement portfolio” that is currently under construction.
Currently, Embracer has 8.5 billion in cash, and an additional 7.5 billion was previously approved through the issuance. CEO Lars Wingefors said in a DI TV interview: “We still have powder left.”
Yeah, the analyst might break a sweat. Should I send an email asking where the company comment is, since the results came out a couple of hours ago?
What I find interesting about Embracer is the management’s track record of creating value, the diversified portfolio, and the partly VC-style investment approach, where they buy many cheap studios, and from those, a few big jackpots can emerge that pay back many times over all the investments that don’t prove profitable.
Do you know what’s behind this? Well, it’s the arrival of GamePass and other catalog services in the gaming world. Now they are building a large IPR portfolio that will enable them to negotiate much better terms than individual studios when facing Microsoft, Google, Amazon, etc. Embracer itself will soon become (or already is) a very attractive acquisition target, and those chasing the gaming world (e.g., Sony is about to be in trouble) will start scrambling for content for their services.
A great story and thanks to this forum once again, I wouldn’t have found this otherwise.
“Sweden’s Tencent” is just the right name for Embracer. As someone in the gaming industry, I’d say that if two identical offers came in, one from Sweden and one from China, it wouldn’t be very difficult to choose which offer to take. Such different cultures, and on the other hand, prejudice against the unknown. Even though there’s nothing wrong with Tencent as an owner, quite the opposite. This should mean an advantage for Embracer as a buyer.
It should also be remembered that setting up a game studio is easy. An office, a few friends, and a couple of years. Then it’s ready for sale. So one could think that Embracer has simply outsourced organic growth and picks studios into its basket when they are ripe.
I would add a softer but, I believe, concrete factor to this: Lars Wingefors is a pleasant guy. For example, Saber’s CEO seemed to really like his new “boss” when watching a webcast from a couple of quarters ago. Personal chemistry matters in acquisitions, especially when the seller stays with the company.
The share price is soaring, but the results are also good. With future acquisitions in mind, there was a reassuring point in the report. As the popularity of VR games grows and the mobile segment is also expected to grow by 13% per year, profits are sure to be made over time, as acquisition targets are well thought out up to a certain point.
"The Group continues to grow within new segments of the gaming market, like Vertigo
Games specializing in VR and DECA Games with a catalogue of free-to-play and mobile
titles. VR is expecting to grow from USD 3.3 billion in 2019 to 5.7 billion in 2023 according to
Superdata, thanks to improved equipment that increases convenience and player experience. Mobile is the biggest segment at USD 77 billion in 2020 and showed no signs of
slowing down with an estimated growth of 13% year-over-year. With over 2.7 billion players
(Newzoo) the games market is becoming a global mass-market. New ways of playing and
accessing games like streaming will help open up the market to a larger audience.
“The game pipeline is as expected minor (about half the value) in Q3 compared to Q4 (January-March) with game releases with a completion value of SEK 150-175 million in Q3 and SEK 300-350 million in Q4. In FY 2022 Embracer forecast to potentially double the value of completed games compared to the current financial year.”
This Biomutant is supposed to be Embracer’s biggest Q4 hit, Embracer’s Q4 ending in March 2021. Redeye has included Biomutant in its forecasts, already calling it Embracer’s stock market year’s “Grande Finale”, but still suspects that it may be too conservative about its future success. Below is Wingeberg’s recent speech about Biomutant. The text is in its original form, i.e., in Swedish, because Google Translate is absolute rubbish here.
The anticipated Embracer game Biomutant currently has around 1,000 bugs, which is a significant reduction from the previous 11,000. The game is in its final stages of completion, says Embracer CEO Lars Wingefors during the report presentation.
“I have said this before. When they are ready, they will release more information about the game. I just want to give some color on why it takes a little time,” Wingefors comments regarding the big game release.
According to the company report, THQ Nordic plans to release a significant title during the company’s fourth fiscal quarter, which likely refers to Biomutant. Wingefors emphasizes that the title will be released to the market when it is ready.
Biomutant will be released for both PC and consoles, and according to an earlier statement, it will also be playable on the new game consoles PS5 and Xbox Series X.
When translated into English, it’s quite understandable.
The much-anticipated Embracer game Biomutant has about 1,000 bugs today, which is a sharp reduction from the previous 11,000. The game is in the final stages, says Embracer CEO Lars Wingefors during the report presentation.
“I have said this before. When they are ready, they will release more information about the game. I just want to give a little color to why it takes some time,” comments Wingefors regarding the big game release.
According to the company report, THQ Nordic plans to release a significant title during the company’s fourth financial quarter, which probably refers to Biomutant. Wingefors emphasizes that the title will be on the market when it is ready.
Biomutant will be released for both PC and consoles, and according to an earlier statement, it should also be possible to play it for the new game consoles PS5 and Xbox Series X.
EMBRACER: NORDEA INCREASES GUIDANCE COURSE TO SEK 235 (230)
STOCKHOLM (Direct) Nordea Markets raises the target price for Embracer to SEK 235 from SEK 230. The buy recommendation is repeated.
EMBRACER: SEB INCREASES GUIDANCE COURSE TO SEK 220 (200)
STOCKHOLM (Direct) SEB Equities raises the target price for Embracer to SEK 220 from SEK 200. The buy recommendation is repeated.
So that the message doesn’t remain completely without content, I found some statistics on Embracer’s historical development:
The last quarter stands out with a remarkable rise.
