Embracer lost $431 million last year

Embracer Group today reported its financial results for its fourth quarter and full fiscal year, showing that its string of high-profile acquisitions helped push net revenues higher, but did not have the same effect on the bottom line.

For the quarter ended March 31, Embracer reported net sales up 117% to SEK 5.23 billion ($525 million), but a loss of SEK 1.67 billion ($168 million), compared to the previous fourth quarter's profit of SEK 159m ($16 million).

The sales gains were driven by acquisitions like Gearbox, Easybrain, and Asmodee, as Embracer reported organic growth of negative 34% for the quarter.

It blamed that number on a tough comparison from the previous year, when its Coffee Stain Publishing division had a breakthrough hit with Valheim.

Revenues from Coffee Stain sank 78% year-over-year for the quarter, from SEK 781 million ($78.5 million) to SEK 171 million ($17.2 million).

While the scope of Valheim's success was unexpected, Embracer CEO Lars Wingefors believed the phenomenon is repeatable, saying, "We hope and believe we have many more of those successes in the pipeline in the year to come."

Beyond that, the company also said the fourth quarter's biggest release, THQ Nordic's open-world RPG Elex 2, did not live up to financial expectations, although it believes it will provide a positive return on investment eventually.

For the full year, Embracer reported net sales up 89% to SEK 17 billion ($1.71 billion), with post-tax losses of SEK 4.29 billion ($431 million), compared to a profit of SEK 287 million ($28.9 million) last year.

The sales gains were again the result of acquisitions, as organic growth for the full year in constant currency was negative 7%.

"Our growth model is unchanged," Wingefors said. "Our main priority across all operative groups is to achieve profitable organic growth."

Wingefors painted the company's 2021/2022 as a transition year, where the company was putting more money into its development pipeline but relatively few of those titles had been released and given a chance to earn back that investment.

Embracer expects to post "substantial" organic growth this year.

"The first major AAA release, which is expected to step change the pace of organic growth, is the much-anticipated reboot of Saints Row scheduled for release on August 23," Wingefors said.

"Across 20 publishers, we have a vast and diversified pipeline of upcoming premium PC- and console games with 223 games to be released in the coming years, including more than 25 AAA games up until FY 25/26."

Wingefors also signaled a possible change to Embracer's acquisition strategy, while still leaving room for further purchases.

"Needless to say, we do not need to make any further acquisitions to grow," he said.

"Nevertheless, we continue to scout for selected additional M&A opportunities to support our long-term growth ambitions. We have an exciting funnel of targets, with emphasis on bolt on acquisitions within existing operative groups."

He also added that the company has noticed "a notable correction in valuation expectations in the private M&A market" in recent months.