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Embracer has reported disappointing results for the second quarter of 2024, with a big drop in net sales of 21% in the gaming group to SEK 8.6 billion ($782 million), while net sales from its entertainment and services also fell by 10% decreased.
Adjusted operating profit fell 33% to $109 million between July and September 2024, missing expected forecasts.
In its entertainment and services division, which includes comic book publisher Dark Horse Media, Embracer reported a 14% decline in organic growth, which it attributed to “lower activity and difficult year-over-year comparisons” within its subsidiary Middle-earth Enterprises, the holding company for “Lord of the rings.”
While Middle-earth Enterprises had a “slow quarter” year-over-year due to a lack of new games, it did deliver “higher-than-expected movie revenue,” the company reported.
Embracer bought the Tolkien IP in 2022 for $395 million.
By far the biggest decline in Embracer’s stable came in the PC/Console games division, where net sales fell 46%. Sales of mobile games also fell by 8% and tabletop games by 6%. The results were attributed to release delays and increases in production costs, as well as “a tough comparison to last year’s releases of ‘Remnant II’ and ‘Payday 3’,” according to CEO Lars Wingefors.
Meanwhile, the PC/console game “The Lord of the Rings: Return to Moria” was released earlier this summer on Steam and Xbox and, according to the company, performed “slightly above management expectations.” Other notable titles this year included “Disney Epic Mickey: Rebrushed,” which performed “slower than expected” in initial digital sales, Embracer reported.
After a difficult few years for the Sweden-based conglomerate, which has undergone a vigorous restructuring and divestment program, it will be split into three listed companies by 2025. One of these, the tabletop games division Asmodee, will be spun off within this financial year. . The other two, Coffee Stain & Friends, a digital gaming entity, and Middle-earth Enterprises & Friends – which will focus on managing the IPs “The Lord of the Rings” and “Tomb Raider” and developing triple A games – are set to follow.
“We are focusing on the best allocation of businesses and assets in our future structure,” Wingefors said in a statement on Thursday. He also unveiled Thursday the sale of mobile puzzle game developer Easybrain’s subsidiary to digital games company Miniclop for $1.2 billion.
On the horizon, the company is pinning its hopes on upcoming anime “The Lord of the Rings: The War of the Rohirrim”, which will be released in the US and internationally next month, with Wingefors saying he expects “remarkable earnings growth year over year” because of the film. Embracer’s quarterly report also noted that there is “increasing anticipation for the release, with encouraging response from fans.”
So far in the third quarter, the games ‘LEGO® Monkey Palace’ and ‘The Lord of the Rings: Duel for Middle-earth’ have been released, both of which are showing strong traction, according to Embracer, while ‘Star Wars: Unlimited’ is coming soon Set 3 “Twilight of the First Republic,” which they also hope will boost sales.
“Over the past fifteen months, we have built a stronger foundation for long-term value creation by reducing our net debt and capital expenditures,” said Wingefors. “We have many high-performing and efficient businesses, several with industry-leading margins. However, we recognize that parts of our PC/Console and Entertainment & Services segments are still underperforming due to delays and low ROI for primarily small and mid-sized releases. Combined with fixed operating costs, this creates unacceptable margins, which we are tackling vigorously in the run-up to the spin-offs.”