24-5-2023 (Stockholm) Swedish games group Embracer announced on Wednesday that a significant strategic partnership it had been negotiating for seven months unexpectedly fell through, leading to a downward revision of its profit guidance and a sharp decline in its share price.
Embracer, known for its acquisition of various development studios and intellectual property rights, including the highly acclaimed Tomb Raider franchise, expressed disappointment over the failed deal, which was anticipated to establish a new industry benchmark.
In a statement, the company revealed that it received notification late the previous night that the major strategic partnership would not come to fruition. The deal, which involved over $2 billion in contracted development revenue spanning six years, was expected to provide a substantial boost to Embracer’s financial prospects.
Notably, the agreement would have allowed for a catch-up payment upon closing, covering previously capitalized costs for a range of large-budget games. Furthermore, it would have significantly improved the predictability of profit and cash flow for the duration of the game development projects.
The announcement had an immediate impact on Embracer’s stock, causing a sharp decline of 40% and reaching an all-time low. Analysts attributed the share price drop to the news of the failed partnership and the revised profit outlook.
Embracer cited game delays, weaker demand, and mixed reception to some of its recent releases as factors contributing to the adjustment of its fiscal full-year adjusted operating profit. The reported figure of 915 million crowns ($90.1 million) closely aligned with the profit warning issued the previous week.
In addition to the partnership setback, Embracer revealed that it had to postpone the planned releases of several games currently under development. As a result, the company revised its adjusted profit forecast for the current year to 7-9 billion crowns, down from the previously anticipated range of 10-14 billion.
Embracer did not disclose the identity of the potential partner involved in the failed strategic collaboration.
