Embracer’s shares plummet after $2bn partnership deal evaporates

Swedish gaming group Embracer’s share price plummeted on Wednesday after the group slashed its forecast for the year and said a $2bn partnership deal had fallen through.

The drop, the biggest daily percentage fall since the shares were listed on the Stockholm exchange in November 2016, came hours after Embracer was informed that a major strategic partnership that had been negotiated for seven months “will not materialise”.

The Nordic gaming group said that as a result, it now expected to generate SKr7bn to SKr9bn ($656mn to $843mn) in adjusted earnings before interest and tax for the 12 months to March 2024, down from SKr10.3bn to SKr13.6bn.

The group’s shares were recently down nearly 44 per cent to trade at SKr23.22 in Stockholm. The price has more than halved over the past week since the group on May 15 warned on profit for the year to March 2023 and signalled delays in closing some licensing deals.

“It has been a challenging year, adversely impacted by game delays, weaker consumer demand and lacklustre reception for certain notable releases,” Embracer’s chief executive Lars Wingefors said in a statement on Wednesday.

Wingefors had transformed the once-obscure Swedish developer into a sprawling games empire through a four-year acquisition spree. The group bought stakes in multiple studios, the US comics publisher behind Hellboy and Sin City, intellectual property for The Lord of the Rings, and board games such as Catan.

But his light-touch approach to integrating these recently acquired businesses, along with the gulf between the group’s actual and adjusted profits, have attracted short interest from hedge funds who argue the group is worth less than the sum of its parts.

Embracer said the unspecified strategic partnership, “which would have set a new benchmark for the gaming industry” and generated $2bn in revenue over six years, was terminated late on Tuesday.

“Put simply, this is negative news,” wrote analysts at Citi, referring to the collapsed partnership deal. “In as far as failure to conclude deals go, a ‘miss is as good as a mile’.”

Wednesday’s warning overshadowed an announcement that it had made a “transformative” deal with Amazon to create a game from its Lord of The Rings IP.

The group reported lacklustre fourth-quarter earnings on Wednesday that nonetheless came in above consensus estimates, while organic sales declined 4 per cent with an operating loss of SKr95mn.

Adjusted ebit came in at SKr6.4bn for the year, significantly below the previous guidance range of SKr8bn to SKr10bn, which Embracer said was due in large part to shifts in the pipeline of game releases, weaker returns in PC and console games and a generally softer gaming market.