The nature of the gaming industry is such that bombs cannot be completely avoided. Unless you stop publishing games altogether.
Even on the flagship side, there have been expansions like Leviathan. It probably wasn’t a big bomb financially in a direct sense, but if repeated, these may drive paying customers away from the DLC purchase list.
Yeah, you can’t make an omelet without breaking eggs! It’s part of the industry’s nature, as you said. After all, the latest Hoi4 DLC received poor reviews. In contrast, the DLC released in Q4’24 received a very strong reception.
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”
On the other hand, the actual revenue of 875 MSEK was at the upper end of the commendable forecast you made in early January (linear forecast 778 MSEK and exponential 922 MSEK).
A bit of buying from the board. Andras is the former CFO of Paradox (2011–2018) and has been on the board since 2021.
On January 29, Andras Vajlok, a board member of gaming company Paradox, acquired 10,000 shares in the company. The shares were purchased at a price of SEK 129.86 per share, amounting to a transaction worth SEK 1.3 million. The deal was executed on First North. This information is disclosed in the Swedish Financial Supervisory Authority’s insider register.
Following this transaction, Vajlok now owns 110,000 shares in Paradox, according to the ownership service Holdings.
© Finwire - 2026
Insiders have certainly been scooping up today’s drop:
However, Regnstedt, Hermansson, and Bricca were already buying at 24/25, and those positions are now more than ten percent in the red, so DYOR.
Here is Paradox’s free cash flow from my own records, calculated as operating cash flow minus game development investments. To save time, I didn’t include hardware investments because they only amounted to 3 MSEK (about 300,000 euros) last year, so the impact is negligible. Additionally, the company spent 100 MSEK on studio acquisitions last year, which I excluded as I wanted to examine the core business’s ability to generate free cash flow.
This is the cash flow left over from business operations after growth projects, which can be distributed as dividends or stashed in the bank.
The % figure is the rolling four-quarter free cash flow relative to revenue. Since the company has no debt and its balance sheet (currently 2.6 billion SEK) is only slightly larger than its revenue (2.2 billion SEK), this also serves as a good proxy for return on capital employed (ROCE) at the same time.
25% is a pretty good level, I’d say. Or rather, a very rare level.
In yesterday’s earnings call on YouTube, the CFO speculated that the current investment level of ~150 MSEK per quarter is the “new norm.” In fact, last year and the year before, the figure was 600 MSEK annually. Before that, it was much higher when the company was still funding, for example, the extremely expensive development of Life by You in California.
If the company does not grow and ceteris paribus, the stock trades:
Number of shares 106M * share price 130 = 13.8 billion
minus net cash ~1000 MSEK
= Enterprise Value (EV) 12.8 billion / free cash flow 0.63 billion = EV/FCF ~20x.
That equals a 5% cash flow yield.
Presumably, if one believes in this, free cash flow will grow in the coming years as the core portfolio expands, while the investment level will likely grow more slowly than before.
Of course, if the firm doesn’t grow and faith in growth is completely lost, the stock will start drifting toward the required rate of return. If that is, for example, 10%, the cash flow yield should be 10%. In that case, the stock should cost roughly 60 kronor per share, which would be quite a long way down.
Usually, companies’ free cash flow yields are in the low single digits because firms have to invest heavily just to stay in place, and investors believe in the “salvation” of growth.
What I’m trying to do here is justify to myself why the stock looks dirt cheap after yesterday’s tumble, even with relatively moderate growth expectations. It is, on the other hand, justified—especially if one doesn’t believe in the sustainable growth of the core portfolio or doesn’t believe the company’s investment discipline will hold after the recent years.
Paradox does look bad optically, as Fredrik has been talking about a “new focus on the core” for three years now, yet Bloodlines 2 has hit the windshield. At least Life by You was cut during development. Perhaps the company calculated that it’s better to throw new money after old and finish BL2, for better or worse, rather than cancel the whole project and receive no returns at all.
It’s also worth reminding everyone that a large portion of sales is in USD, while the firm’s expenses are in SEK (except for marketing, which is in USD). The company doesn’t waste money on currency hedging. The krona strengthened (or the dollar weakened against it) by over 10% compared to Q4’24. To put it simply, revenue would have been 10% higher in kronor without this movement. 
Perhaps I’m thinking about this wrong, but I see Paradox as very interesting right now. For example, the thread has mentioned rising PC prices, but in the big picture, these factors come and go. The reception for EU V softened, but we can probably agree that it’s a good platform to build the next 10–12 years of DLC on. And as noted in the thread, retention has been good compared to previous releases.
Finally, some cash flow assumptions. Historically, the company has grown ~15% per annum with its core portfolio. If we assume that:
The company’s free cash flow grows 10% per annum (slightly faster than revenue due to improving profitability) for the next 5 years, reaching about a billion kronor, followed by 3% terminal growth and a required return of as much as 10%, then the current price would be roughly justified (EV = 12 billion, currently 12 billion).
10% is a fairly high requirement because Paradox owns game brands that have proven their longevity, it has a strong position in its own niche, and it is very profitable and relatively stable. But 10% is a good conservative rule of thumb, while others might calculate with 8–9% requirements.
Another good post from Verneri, although I think his assumptions, especially regarding the company’s growth potential, are quite overly optimistic. I’ll justify this from my own perspective; I don’t think Verneri will mind. I’ll use Verneri’s figures where needed and look up others from Google Finance (when will we get Paradox under Inderes coverage?) and focus on a cash-flow-based valuation.
The company grew well in the 2010s, but according to Google Finance, it hasn’t succeeded in recent years (2022 1.97bn, 2023 2.64bn, 2024 2.2bn, 2025 2.19bn). I don’t believe the company can achieve significant growth in the future because focusing on the core portfolio significantly limits the possibility of growth (though also the possibility of losses and write-offs).
The company faces a very big question regarding its core portfolio: will it succeed in 1) keeping its old, affluent customers on board and 2) succeeding with its highly complex games in acquiring new players to buy expansions? To me, there is a genuine possibility that Paradox’s revenue could even take a clear downward turn. The firm is very high-quality in its own small niche of super-hardcore strategists, but growing beyond that hasn’t been successful. There is always a risk that they will seek growth again and fail, burning through cash.
I’m starting from what I consider a neutral assumption: that on average, the company can grow its revenue enough to compensate for cost inflation. I’ll also give a generous required rate of return of only 8% for the cash flow and take the healthy net cash into account. An 8% requirement because the firm is admittedly high-quality (my normal required return for an average firm is 10%).
Using Verneri’s figures, that would mean (0.63bn * 12.5) + 1000MSEK net cash ~ 10 billion SEK market cap. That would be 95 SEK per share, which I set as a price alert (after the last quarterly result, I had roughly set it at 90 SEK). In this respect, I think the stock is still quite expensive, and although I love the idea of Paradox Interactive paying me instead of the other way around, I don’t see a justification to invest in the stock at this price level.
This might not sound very expensive relative to other gaming companies, but gaming company valuations in general are completely absurd. They jumped into a staggering bubble, especially during the boom caused by the COVID crisis, and have been slowly descending from there.
However, there are exceptions: for example, Rovio was a very affordable stock relative to its net cash and earnings before the acquisition offer went through. The P/E ratio adjusted for net cash was around 6, and the firm also had a strong brand.
Note: The following section contains personal gaming history with Paradox products, but I’ve noticed the same phenomenon in my inner circle. I feel this is still relevant when assessing the growth and return potential of Paradox’s stock. Skip if not interested.
I have played Paradox games for 25 years, ever since the first Europa Universalis. Thousands of hours have been sunk into them.
However, for the last 1.5 years, I haven’t played Paradox games at all.
Out of old habit, I’ve bought these in Humble Bundles or some fire-sale discounts, but I haven’t even touched them yet:
Why haven’t I played Victoria 3 or Hearts of Iron 4, then? Quite simply, the reason is a lack of time and little opportunity to take an entire day off just to even get to know Victoria 3’s game mechanics. The biggest problem with Paradox games is that you really need a massive amount of time for them. They have also constantly moved in a more complex direction, which increases the barrier to entry. And time is a resource that is being fought over nowadays.
I don’t intend to buy Europa Universalis V for a long time. I’ll wait until it’s offered either for free or at some nominal price. Later, when the subscriber model likely comes to the game, I’ll probably take it for a month at a time if I want to play the game. Where Europa Universalis IV got probably 300 euros worth of purchases from me, EU5 might get maybe a tenth of that.
I would have liked to post a picture of my Paradox game collection here as a lighthearted addition, but the old game discs have probably gone into storage. Starting from Europa Universalis bought at a flea market in 2001, there should be Europa Universalis 2, Europa Universalis 3, Hearts of Iron, Hearts of Iron 2 (and Doomsday), and I guess Hearts of Iron 3. I’ll try to remember to take a picture when they turn up, as I suspect Verneri, being a fellow history buff, would appreciate the echoes of history.
I also have the Europa Universalis board game (licensed by Paradox) on the shelf, but it has the same time-consumption and difficulty-of-entry problem for new players as Paradox’s video games.
The perspective you raised is excellent, and I’ve been thinking about it a lot myself.
I don’t write here to pronounce the absolute truth, but to expose my own thoughts (or those I’ve borrowed) for others to chew on. Whenever I invest in something, I primarily try to look for flaws in my own investment thesis. So I’m not offended, I’m delighted. =)
If we look at Paradox during its time as a listed company, the core portfolio has practically grown the company’s revenue from half a billion to the current over two billion, if we look at the rolling 12-month figures. For a gaming company, the growth has been surprisingly stable.
The growth has happened specifically with the core portfolio, because larger side projects have either been canceled (Life by You) or been flops (Bloodlines 2).
It’s true that growth has been slower in recent years, as has the growth in player numbers. There are good figures in this thread for all PDX games; here is basically the development of the core portfolio by looking at average monthly players.
The release of EU V caused a new record peak alongside the previous Cities: Skylines II from 2023, but the rolling 12-month average player count on Steam has turned stable or even into a slight decline.
In a way, this kind of stability is even surprising, considering the tightening competition in the gaming market in recent years and the outright gaming industry depression following the pandemic-era gaming boom.
In other words, one should consider whether the current leveling off is a temporary hiccup or a new normal (after all, you can’t squeeze infinitely more money out of the same number of players) or even a harbinger of a larger decline. I don’t believe that the number of “armchair rulers” who paint maps (mainly men) would decline in the world; on the contrary, I believe this tinkering hobby (too) has its own niche.
Preliminary figures on the development of, for example, EU V would support this idea, because despite the game’s complexity, it got a real player peak in its first month.
In addition, the company could have even more potential in Asia, for example. Tencent owns 10% of Paradox and has recently taken a more active approach as an owner of studios, offering its massive expertise in marketing and localizing games.
Paradox now has 7 larger games in the pipeline, so presumably there will be updates of old games to new versions (eyes are slowly turning toward the rather old Hoi4 and Stellaris), as well as something completely new. Plus PA2, which has spent time in development chaos.
A bullish interpretation of the past is that historically Paradox has been really good at growing strategy services for a larger audience from niche games. On the other hand, it’s unpredictable for the future that many of the successes were a bit surprising. As I understand it, no one guessed beforehand what a success Stellaris would be, and Cities: Skylines 1 also seemed to surprise, happily. Will such strokes of luck happen in the future? If they do, the company undoubtedly knows how to monetize them.
It would be interesting to know more about the player demographics. Paradox’s last Deep Dive day was in 2023; perhaps it will reveal something more at some point. For example, my 30-40-year-old age bracket tends to be busy at this stage of life, which prevents sinking too many hours into these games. On the other hand, the player age range is 15–60+ years. In many hobbies, things take a backseat right around the 30-40 age range only to return again later.
Investors seem to be expecting significantly slower growth than before, 5-10% in the coming years. It’s also possible that some game will be a pleasant surprise. It’s also quite possible that some game will explode again and the growth company will turn into a declining company. Between these three directions of development, each of us can balance our own thinking.
Spiltan moved to the buy side. This seems to be their first addition. They have reduced their position several times before.
Investment company Spiltan purchased 210,000 shares on February 2nd in the gaming company Paradox, where it is one of the largest owners. The shares were purchased at a price of 130.00 kronor each, and the total value of the transaction was 27.3 million kronor. This is shown in the Finansinspektionen (Swedish Financial Supervisory Authority) insider register.
Paradox has long been Spiltan’s clearly largest investment. After the purchase, Spiltan owns approximately 16.34 million Paradox shares, which corresponds to 15.47 percent of the company’s capital and votes.
Paradox’s share price fell after last week’s earnings report, and its price has dropped nearly 22 percent during the current year. Over the last year, the decline has accumulated to over 40 percent.
The market reaction still remained quite muted.
And already a second purchase of 39 MSEK. It’s not huge money, but they would hardly be shoveling more money into what is already their largest holding if it were seen as a burning platform.
On the other hand, you should never trust too much in the rationality of investors.
It’s worth mentioning that Fredrik Wester himself also bought shares with some pocket change.
This isn’t a scientific study, but the WSJ compiled data on insider buys in the US from recent years. Insiders tend to buy shares during the dip (who doesn’t? :D).
But, on average, after a short bounce, many stocks continue to crawl thereafter.
Therefore, these shouldn’t be interpreted too over-positively because price developments are scattered like a shotgun blast.
An insider buy is thus like another person working at the company urinating in my pants in freezing weather. The momentary warmth can be followed by cold again.
Link to the paywalled news article: https://www.wsj.com/finance/stocks/is-it-really-a-good-sign-when-executives-buy-their-own-stock-we-ran-the-numbers-2655b232?mod=hp_lead_pos8
Good point, although the study has a very short time perspective. The charts examined stock movements 1 month from the time of purchase.
Now that most of us Paradox owners are bagholders have bought the stock for a long-term portfolio, it would be interesting to see research results from a longer time period. If you ever come across any, feel free to share!
https://steamdb.info/publisher/Paradox+Interactive/
EU5’s player counts are certainly ugly, on the same level as EU4 and half of CK3 & 1/4 of HoI4.
As @poutapilvia linked above, retention has been the 2nd best since CK III, but the starting level was also a bit lower. Note: CK III launched in the middle of the pandemic in autumn 2020.
By the way, would you believe from the graph below that Hoi4 would turn out to be a good game?
In addition, there is now a major update in beta testing for EU V.
