Starbreeze Q2’24 preview: Pivotal months ahead

Starbreeze will release its Q2 results on Tuesday, August 20, 2024. The standout event for the second quarter was the launch Boys in Blue on June 27 - the second DLC for PAYDAY 3. While the content and game dynamics received overall positive feedback, the player activity followed the familiar pattern seen with OMB (Operation Medic Bag)-related upgrades: an initial spike in CCU’s followed by a distinct reversion, albeit over a slightly more extended period than previously. PAYDAY 2 player activity has remained relatively stable during the second quarter, but a broader view reveals a continuing long-term decline. Our Q2 revenue estimates are 39.7 MSEK (Q1'24: 57 MSEK), where the q/q drop is attributed to lower expected revenues from PAYDAY 3 and third-party publishing. Insights from CEO Mats Juhl regarding the game's outlook and strategies to sustainably increase player activity will be of interest in the report.

Lower expected revenues and relatively unchanged cost base q/q strain the financials

OMB initiatives, other game enhancements, and the recent DLC launch (Boys in Blue) caused initial spikes in PAYDAY 3 CCU counts, followed by distinct declines, according to Steam data. However, there is a minor but positive upward trend in PAYDAY 3 player activity when looking at the past few months, which is encouraging. Despite this, the CCU count remains significantly lower than its predecessor, indicating substantial work ahead for Starbreeze. Our net sales estimate of 39.7 MSEK reflects a 29% decline compared to Q1'24 (56.6 MSEK) and an 8% y/y decline. We expect PAYDAY 2 sales to remain roughly in line with Q1'24 figures (~10 MSEK), supported by stable player activity during the second quarter. Thus, the expected revenue drop is primarily attributed to PAYDAY 3 and third-party publishing. We expect PAYDAY 3 to generate revenue of 19 MSEK in Q2’24, down from 23 MSEK in Q1’24.

Additionally, we anticipate third-party publishing revenue to decrease to 10 MSEK in Q2'24 (down from 17 MSEK in Q1'24) despite a positive update for Roboquest on June 6 that increased concurrent users. Games typically generate the highest revenues during the initial release period and the subsequent few months when players purchase the base game. Consequently, our revenue projections for the second quarter are lower than previous quarters. However, the relatively stable CCU and favorable reviews suggest a solid foundation for future revenue through additional content and features in the game.

Looking further down at the income statement, we anticipate the cost base to remain relatively unchanged from Q1'24. Consequently, the lower expected revenue will significantly impact profitability. We estimate an EBIT of -60 MSEK for Q2'24 (Q2'23: -3 MSEK), representing a 17 MSEK decline from the adjusted EBIT of -43 MSEK reported in Q1'24.

The Boys in Blue release resulted in record levels of player activity year-to-date

On June 27, 2024, Starbreeze launched the Boys in Blue DLC, the second of four planned for 2024. Before the launch, Starbreeze had released the fourth OMB patch, introducing a new Infamy Point-System, rotating gameplay modifiers, and other enhancements. Furthermore, to address community concerns about high DLC pricing, Starbreeze announced a 33% price reduction for Year 1's upcoming DLCs and offered cosmetic items to those who purchased the Syntax Error, Silver, and Gold Editions.

With these enhancements within and around the game leading up to the launch of Boys in Blue, the DLC release resulted in record levels in player activity year-to-date, peaking at 3,286 CCU on Steam. The overall community feedback regarding the game content and dynamics was positive, with 80% of reviews on Steam being favorable. However, the launch experienced delays and minor technical issues, causing some frustration among the player base. By the end of July, CCU had fallen back to approx. 750-800 on Steam (daily peak). Following the launch of Boys in Blue, Starbreeze introduced the first of two iterations of Solo-mode, a much-anticipated feature among players.

The coming months will set the tone for the future

Although the trend in PAYDAY 3 is improving post-OMB efforts and the DLC launch, player activity levels, in absolute numbers, are still well below its predecessor and where Starbreeze wants them to be. The coming months hold the potential to change this, with two major DLCs – Land of the Free and Fear and Greed –scheduled for release by the end of September. Additional OMB updates, including improvements to solo mode, matchmaking, CrimeNet, and Offline Mode, are also planned. We believe that these releases will support a gradual improvement in PD3 revenues from Q3 and onwards. Nevertheless, we remain cautious about these potential impacts, given the relatively muted effects from several initiatives and enhancements year-to-date. Our FY2024 revenue estimates remain unchanged at 184 MSEK (FY2023: 634 MSEK) with an adjusted EBIT estimate of -230 MSEK (FY2023: 190 MSEK).

Currently, Starbreeze's balance sheet is strong, with 387.2 MSEK in cash and cash equivalents and virtually no debt at the end of Q1'24. Given our current estimates, which assume PAYDAY 3 does not recover significantly, we expect the cash position to deteriorate in the second half of 2024 as revenue streams will be insufficient to cover the company’s high fixed cost structure. Regarding Project Baxter, Starbreeze has indicated they will likely enter partnerships for marketing, distribution, and other support. However, if PAYDAY 3 does not recover, Starbreeze might need to find a co-publisher for the game or explore other financing options to proceed with its launch. Conversely, if PAYDAY 3 turns around, such measures may not be necessary, allowing the company to continue with its current plans.