Commissioned Research: Starbreeze

Video game developer and publisher Starbreeze stands poised to profit from the global gaming market.

Starbreeze has commissioned Nordea Markets to produce a research report with the aim of providing investors with quality research on the company.

Stellar Q2 overshadowed by console delay – Updated 22 August 2018

Publishing deal bolstered profitability

The stakes are high for Starbreeze after the mixed reception at E3 and as the release of Overkill’s the Walking Dead (OTWD) draws ever closer. The market was caught off guard by a console delay for OTWD, which will cause a shift in estimates, but our overall view remains the same. We argue that the upcoming release later this year holds potential but that investors should not overlook the hidden gems in Starbreeze’s portfolio, which have the potential of being real blockbusters.

Read the full report here.

Record-high Q1 ahead of major game launch – Updated 11 May 2018

Publishing deal bolstered profitability

Net sales grew by 92% y/y to SEK 110m in Q1, which marks the best Q1 yet in terms of revenues. The main driver was the licensing deal for Dead by Daylight and the launch of PAYDAY 2 on Switch. We note that sales of PAYDAY 2 are mainly digital sales as retail sales are reported with a lag and will be visible in the next few quarters. The company has indicated that the sales of the physical version of the game are outperforming digital sales, which is common for games on the Switch console.

Starbreeze showed solid cost control in Q1, as costs were on a par with Q1 last year excluding revenue sharing, despite higher amortisation. Compared with Q1 2017, Starbreeze improved EBITDA to SEK 49m from SEK -35m. The main driver was the previously announced Dead by Daylight deal, which will continue improving the bottom line until the full USD 16m consideration is received.

Major inflection point ahead

We make some minor adjustments to our near-term sales estimates, primarily to reflect somewhat slowers sales of PAYDAY 2 on Switch than we had anticipated. We also assume slightly higher profitability in 2018 and 2019, as costs were significantly lower than our expectations in Q1. We also take comfort in management confirming that it will release the gameplay for OVERKILL’s The Walking Dead during the Electronic Entertainment Expo (E3) in June, in line with our expectations. Givet that Starbreeze is ramping up its marketing efforts, we believe the risk of further delays is limited.

Read the full report here.

Big in Taiwan – Updated 27 April 2018

Huge appetite for VR assets

23 April marked the first day of trading for Starbreeze’s joint venture StarVR Corporation on the Taipei Exchange Emerging Stock Board. In initial trading, the share opened at TWD 69, but has experienced a tremendous run and is currently trading around TWD 120.5. StarVR has 48.2 million shares outstanding, which equates to a market cap of around SEK ~1.7bn (TWD/SEK of 3.42). This implies a value of SEK 565m for Starbreeze’s 33.3% stake in the joint venture.

We make some adjustments to our estimates and valuation following the recent news flow. As Behaviour will inherit all of the costs associated with DBD, we assume higher near-term margins in Publishing, but lower future sales later in our forecast period. We also plug in the upfront payment of USD 4m into our numbers. The net effect is insignificant to our valuation. As we have previously assigned a limited value to the hardware VR sales, the inclusion of StarVR (with a 30% liquidity discount) lifts the upper and lower end of our valuation range by SEK 1.2 per share.

Read the full report here.

Challenge reality – Updated 12 March 2018

Impressions from site visit in Dubai

Last week, Starbreeze and Emaar Entertainment hosted an event to showcase its new flagship VR Park for international press. We attended the event and had the chance to try out the different experiences. Starbreeze is the main partner of the 75,000 sq ft park in the Dubai Mall, which is among the world’s most visited shopping and entertainment destinations. In total, the park provides eight different attractions and a majority of these were playable with the StarVR HMD.

Overall, we were positively surprised that the concept already seems more scalable and commercially viable than we had anticipated. There were more headsets than we had expected and channel checks confirmed high utilisation. Also, when speaking to employees we got the impression that Starbreeze’s attractions were among the highest rated.

Read the full report here.

Three quarters to payday – Updated 6 March 2018

The game is on

Once a niche form of entertainment, gaming has evolved into a rapidly growing industry that pulls in more revenue than the film and music industry. The global gaming market generates over USD 100bn in revenue a year, with a burgeoning player base of over two billion in 2017, many of whom are spending more on games than ever before. Video game developer and publisher Starbreeze stands poised to profit from this booming market thanks to the popular titles it has under its belt and its diversified business offering.

The chance to make a killing

We have confidence in Starbreeze’s record and upcoming game releases and see the company cashing in peak sales of SEK 2.6bn over our forecast period to 2021E. It will likely make a killing from the launch of the much-anticipated OVERKILL’s The Walking Dead, slated for autumn 2018, and here we expect it to shift nearly 8 million copies over the course of three years. We base our estimates on the performance of comparable game titles, franchise interest, previous sales record and market trends.

Raising its game

To combat the potential swings in earnings between major game releases, Starbreeze has broadened its operations, adding a publishing arm and investing in emerging technologies. Its games as a service approach and releases of downloadable content bolster its games’ lifetime and generate substantial revenue even years after the initial game launch. This predictable revenue stream helps to de-risk the business model and will likely improve Starbreeze’s earnings stability.


Based on our fundamental DCF approach and assuming a WACC of between 7.9-9.1%, we derive an equity value per share between SEK 13.8 and SEK 15.9. This implies a 2020E EV/EBIT between 5.4x-6.4x and 2020E P/E of 9.0x-10.3x.

Read the full report here.

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Conflict of interest

Readers of this document should note that Nordea Markets has received remuneration from the company mentioned in this document for the production of the marketing material. The remuneration is predetermined and is not dependent on the content. It is important to note that past performance is not indicative of future results. Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets.

Issuer review

This report has been reviewed, for the purpose of verification of fact or sequence of facts, by the issuer of the relevant financial instruments mentioned in the report prior to publication. The review has led to changes of facts in the report. Completion date: 27 April 2018, 07:57 CET

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