This was a lukewarm interim report, no two ways about it.
However, I feel that investors might be drawing too many conclusions regarding EU V from this.
Paradox always has a high COGS when a new release comes out. A new release requires marketing on a completely different level, etc., in order to reach the same level of profitability as expansions. If you look at EU V in terms of player retention, it was still Paradox’s second-best game ever, despite the bad updates:
In the image, player counts relative to release.
Personally, I think the revenue fell short because of the two other heavy hitters, namely HOI 4 and Stellaris. The CFO also gave hints about this in the report:
" The increase in revenue compared with the previous year is mainly explained by the releases of the new games Europa Universalis V and Vampire: The Masquerade – Bloodlines 2. The quarter’s release of All Under Heaven for Crusader Kings III also contributed to higher revenue, while the comparative period’s expansion Götterdämmerung for Hearts of Iron IV, as well as, among others, the Grand Archives expansion for Stellaris, generated higher revenue in the prior period."
To recap: Stellaris had its 4.0 update released in the fall, which I think messed things up quite a bit. Similarly, the aforementioned update for HOI 4 was released and slammed in reviews – apparently for good reason.
But this is a tough nut to crack. After the share price drop, you could buy a company on the stock market doing EV/OCF=10 + ROI=40%, but a revenue decline is expected for at least a good year. On the other hand, profitability will improve rapidly once the games are fixed. Add to this all the concerns about rising component costs, and there you go.
I’ll just have to take comfort in the CEO’s fine words:
“As we look ahead, we do so with clarity, focus, and strengthened confidence. Vampire: The Masquerade – Bloodlines 2 was the last major project in development that was outside of our core areas. As post-release work winds down, resources and focus are being redirected to projects where we know we can create the greatest value. Our future pipeline is now fully concentrated on deep strategy and management games, with the majority developed in our own studios which provides both creative strength and long-term profitability”
