Embracer Signals Potential Miss on Debt Reduction Target Amid Weaker-than-Expected Operating Profit


Swedish games developer Embracer has indicated the possibility of falling short of its debt reduction target, despite maintaining its full-year forecast, following a report of slightly weaker-than-expected operating profit for the period spanning October to December.


Shares in the company experienced a notable decline of over 16% at 09.22 GMT, marking the potential for the worst trading day since May 2023. Since then, Embracer's shares have witnessed a decline exceeding fifty percent.


Reporting a 7% increase in adjusted operating profit to 2.15 billion Swedish crowns ($204.40 million) for the quarter, Embracer fell short of analysts' forecasts of 2.21 billion crowns, as per a consensus provided by the company. The company cited factors such as a softer outlook for PC/Console in 2023/2024, recent game performance, and pipeline shifts in the fourth quarter as contributing to the subdued performance.


Despite acknowledging potential challenges in reaching its March net debt target of 8 billion crowns amidst ongoing restructuring, Embracer reiterated its commitment to a 12-month leverage goal and maximizing shareholder value.


While third-quarter results were deemed "soft" by Jefferies, the mobile games segment's performance surpassed expectations. CEO Lars Wingefors highlighted record-high profitability in the mobile segment, driven by a strategic shift towards more recurring games that offer deeper player engagement.


Embracer's setbacks, including development delays and falling demand, have impacted the company's performance, exacerbated by the lukewarm reception of some new titles. Notably, a $2 billion partnership deal that fell through in May prompted a major restructuring plan in June.


Two weeks ago, Embracer Group halted the development of a new "Deus Ex" game, redirecting resources to an original franchise to optimize costs. Meanwhile, French rival Ubisoft expressed optimism in its Q3 results, citing net bookings that exceeded guidance, driven by new releases and back catalogue sales.

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