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Turning the corner
No material surprises in Q1, with FX dragging EBITDA and content drought weighing on revenue. Still, lower capex cushioned EBITDAC. We cut estimates slightly but maintain our long-term view. With shares undervalued and key releases ahead, we see solid upside. We reiterate our Buy recommendation while lowering our TP to SEK 250 (260).
Slow start to the year – as expected
Paradox reported net sales of SEK 464m in Q1, in line with our estimates but 3% below market expectations. Following a record-strong Q4 regarding content output, Q1 saw a natural reversal effect as no major new content was released during the quarter, which resulted in a net revenue decline of 4% y/y. SG&A came in in line with our estimates, but negative FX movements negatively impacted EBITDA of SEK 25m, which explains the 11% EBITDA miss vs. PASe. On the other hand, capex came in at SEK 120m (-33% y/y), below our forecast of SEK 150m, explained by Life By You coming off the books and BL2 approaching its release where some of the development costs related to the final touches have been passed on to the developer. This mitigated the negative effect on EBITDAC, which was just 1% below PASe. Management is confident in its pipeline for the rest of the year and looks forward to releasing “new major games.”
Estimate changes
As capex came in significantly lower than PASe, we have reduced our estimates for the remainder of the forecast period by 14–15%. Investments in game development have now declined by 40% compared to the 2022 average, and we believe the most recent figures represent a new baseline from which Paradox will begin to grow. Paired with FX headwinds, we are also lowering our sales estimates by 3% over the forecast period. Additionally, we have increased our D&A estimates for the upcoming period to better reflect the pipeline and the completion of ongoing content development. The net negative impact on adjusted EBIT is 15%/10%/6% for FY25-27e. These updated estimates reflect a more cautious outlook on the yield conversion of previous investments. However, it is important to note that our accumulated EBITDAC estimates for FY25-27e remain largely unchanged, driven by the reduced capex.
Buy reiterated, TP SEK 250 (260)
Shares have recently experienced a sharp sell-off, with valuation multiples contracting to attractive levels. The current valuation of 9.9x EV/EBITDA for FY’25e represents a 20% discount to the four-year average and a widening discount relative to other international tier-one peers. With Q1 now behind us, a sequential improvement in content output, and a potential flagship announcement on the horizon, we believe the current levels present an attractive entry point. We reiterate our Buy recommendation while lowering our target price to SEK 250 (260). TP corresponds to 14.4x EV/EBITDA and 22.2x EV/FCF for FY’25e.
EU 1 var genialt for sin tid !
Standing at the crossroads
Paradox faces a soft Q3, weighed down by limited releases and FX effects. Attention now shifts to Q4’s critical titles, which could define FY’25–26 performance. Risk remains high but we believe expectations are appropriately set and reiterate Buy while lowering TP 215 (225) on estimate changes.
Q3 expected to be another soft quarter
We expect Q3 to be another quarter with soft content output which prompts us to lower our sales estimates by 9.5%. In addition to softer content output y/y, Paradox is facing significant FX headwinds, as 97% of revenues are derived from currencies other than SEK (primarily USD). With approximately 50% of its cost base in SEK and the USD/SEK trading down 8.7% y/y in Q3, this is expected to pressure both the top line and margins for the quarter. We stand street low on headline figures heading into Q3.
Upcoming games releases
With 44% of FY’25e sales expected in Q4, we believe the Q3 results in isolation will largely be a “non-event,” as the earnings release falls between two of the company’s most significant launches in recent years - Bloodlines 2 (Oct 21) and Europa Universalis 5 (Nov 4). The Bloodlines 2 release is particularly difficult to forecast for several reasons, including the multiple delays that have distorted follower and wishlist data on Steam. According to Alinea, since the game has been listed on the storefront for several years, a majority (54%) of all wishlists are >3 years old. Based on multiple regressions using wishlisters less than three years old, followers ahead of release, and D30 copies sold for approximately 500 other premium Steam titles released in recent years, we estimate Q4 sales of SEK 210m for Bloodlines 2. Relative to its budget of over SEK 700m, this would represent a significant failure. Doing the same exercise using all followers yields SEK 570m in sales, highlighting the high degree of uncertainty. However, management have done a good job of downplaying expectations, and our perception is that most investors already are treating sales generated from this game as a one-off with a potential upcoming write down as a result. That said, EU 5 is by far the most important release for the equity case. We believe it must be well received for current estimates to hold, given the limited visibility into the rest of the pipeline and its maturity. With an additional SEK 247m in sales from EU5 and SEK 567m in back catalog sales, we stand at SEK 1.025m in total revenue for Q4.
Expectations are appropriately set
The risk remains high over the coming months with several moving parts playing a large role to Q4e and FY’26e. But looking at markets estimates and the current valuation corresponding to 11.0x/8.9x EV/EBITDA and 17.9x/13.8x EV/EBITDAC on FY’25/26e ahead of launch we believe expectations are reasonable set and we deem the risk/reward attractive. We reiterate Buy, while lowering our TP to SEK 215 (225) following estimate revisions.
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Ikke akkurat bra reviews…
24k spillere kort tid etter launch som kanskje ikke er så gale som man kunne fryktet. Det har begynt å komme reviews fra spillere og foreløpig er det 48% positive men bare 41 reviews . Ser mange klager på at de ikke kommer forbi loading screen’en og det er jo litt dumt 
Ser den siste dlc’en til CK3 får OK reviews ( 85% positive , 742 reviews ) :
positive :
negative :
Ikke lett å lage en oppfølger til et spill som har 12-13 år med dlc’er så er veldig spent på hva slags reviews EUV får fra spillere.
EDIT:
#1 på GTS og 52k spillere 17 min etter launch ser OK ut. Mangler bare bra reviews fra spillere nå
Trodde det ville komme en kjøpsmulighet i dag…
Fy katta som de har mismanaged cities skylines 2. Siste der er at Colossal order fjernes som studio, og paradox tar det hele inhouse med et nytt team de bygger opp, sannsynligvis med en del gamle colossal order ansatte. Så får vi se om det er første skritt til kirkegården, eller om de kan få til en rescue.
CS2 er det minste problemet de har. De nuker en liten milliard i kostnad relatert til BL2.
BL2 burde nok vært stoppet da de fjernet hardsuit labs fra prosjektet i begynnelsen av 2021 . Tenker også at det sannsynligvis ville fått bedre reviews hvis det ikke ble markedsført som en oppfølger. Det positive er uansett at det ikke er noen gigantiske bomber igjen ( får kanskje en liten med prison architect 2 ) og at de har gjort en bra jobb med EUV. Bør jo sitte på brukbart med cash etter dette kvartalet.
Eller 700msek som noen ville sagt Skal uansett ikke glemme at det kommer 2 expansions i 2026 ( q2 + q3 ) .