On Thursday, January 29 at 8:00 a.m. CET, Paradox Interactive, the video game publisher and developer with ticker $PDX (-3,52%) , published its year-end report, just before holding its usual earnign call at 12:00 p.m. CET with shareholders.
The figures were the following:
- Revenues amounted to MSEK 874.8 (MSEK 709.1), an increase of 23% compared to the same period last year.
- Operating profit amounted to MSEK -245.4 (MSEK 395.3), a decrease of 162%.
Profit after financial items amounted to MSEK -241.7 (MSEK 404.3), and profit after tax amounted to MSEK -201.4 (MSEK 310.8).- Cash flow from operating activities amounted to MSEK 513.2 (MSEK 441.8), and cash flow from investing activities amounted to MSEK –145.5 (MSEK -158.9). Cash flow from financing activities amounted to MSEK -9.8 (MSEK -9.7).
- At the end of the period, cash and cash equivalents amounted to MSEK 1,375.3 (MSEK 1,469.4).
- Earnings per share (EPS) before dilution amounted to SEK -1.91 (SEK 2.94) and after dilution to SEK -1.91 (SEK 2.94).
- The proposed ordinary dividend raised at 5 SEK per share (3 SEK per share and 2 SEK per share as extraordinary dividend in 2025)
- Revenues for the quarter are primarily attributable to Age of Wonders 4, Cities: Skylines, Cities: Skylines II, Crusader Kings III, Europa Universalis V, Hearts of Iron IV, Stellaris, Vampire: The Masquerade – Bloodlines 2, and Victoria 3.
As a consequence, the share immediately dropped at around -14% before having a small recovery and ending the day at a -12%. As it is possible to see, the huge sell-off was probably guided by the decrease in operating profits and EPS, despite an increase in revenues and cash flow YoY. But numbers, alone, don't tell the whole story and algorithms would not dive into it before selling.
The story behind the numbers goes back to November 26, when Paradox had to announce a non-cash write-down of an asset, Vampire: The Masquerade - Bloodlines 2 in the fourth quarter, of 355 MSEK (in addition to a scheduled degressive amortization of MSEK 346) of capitalised development costs. But what is Vampire: The Masquerade, Bloodlines 2?
This is a vampire-fantasy role-playing game that had a good success in the previous chapter but has not met the expectations of gamers and critics this time with sales goind below the management's expectations. The management took full responsibility in a transparent way, the game is out of the grand strategy genre that is the core business of Paradox, and had to acknowledge that sales were not withstanding expectations just a month after the release.
At the time, the market actually reacted positively to the press release and to the statement made by the management on focusing more on core segments. After the early reactions, however, the share started a declining path in the following months.
Numbers published last Thursday, however, certified something that was already known and unveiled very strong results on cash flow and good fundamentals in a competitive market, the one on videogames, that suffered after the pandemic boom (just look at how other publishers and developers are doing right now).
Given the market reaction and some difficulties in making results readable to market operators, during the earning calls the management announced the possibility of holding a Capital Markets Day to better express pipeline and fundamentals to investors.
On a personal basis, I am not against experimenting (although in this case, Vampire was not a real experiment, more a sequel that did not match expectations) and hope that publishers and developers in the industry as a whole will not give up taking some risks to explore new areas of work and products. Without this, innovation is not possible and we will continue to rely on the development of old videogames, invented even decades ago.
We will see. Have a good Sunday, Community, and share thoughts if you wish!
This content was not AI-generated and all mistakes are mine. This post does not represent, in any way or form, financial advisory or suggestions.