Embracer Group's earnings fall short of expectations, attributed to a decrease in demand for their game catalog.
The gaming industry is currently facing a series of challenges, with companies like Embracer and Ubisoft adapting their structures to respond to these hurdles.
Last year, Embracer, the owner of the Tomb Raider franchise, announced a plan to split into three listed companies. This significant restructuring move within the industry is a response to development delays, weak demand, and the collapse of a planned strategic partnership.
Embracer's first-quarter operating profit in 2022 fell below analysts' estimates, primarily due to a significant decline in adjusted EBIT. The negative organic growth of -2% in the quarter and the exclusion of profits from divested assets like Easybrain and Gearbox contributed to this decline. While capital expenditures decreased, this reduction wasn’t sufficient to offset the drop in operating profit.
The broader context includes ongoing organizational transformation and portfolio adjustments, which may have temporarily affected profitability as the group restructured.
Video game developers are also rethinking their business models due to worsening consumer sentiment. The production process for video game titles is being reconsidered due to changing market conditions.
Ubisoft, Embracer's French peer, also announced a plan to split its business into "creative houses" based on specific genres. This decision comes after Ubisoft had a quarterly earnings miss last month.
Delayed game releases are dampening the growth of the gaming industry. The pandemic-era surge in gaming is receding, and the softness in Embracer's business is due to competition in the PC and console gaming market.
Rising PC and console prices, along with US import duties, are impacting the gaming industry. Consumer sentiment in the gaming industry is worsening, with competition leading to a slowdown in gamer acquisition for Kingdom Come Deliverance II, a game launched by Embracer in February.
The gaming industry continues to face challenges, and it will be interesting to see how these restructuring moves will impact the future of the industry.
In light of the ongoing challenges within the gaming industry, Embracer, the Tomb Raider franchise owner, has restructured its business by splitting into three listed companies, aiming to address issues such as development delays, weak demand, and collapsed strategic partnerships. On the other side, technology advancements and the rise of innovative gadgets are continuously shaping the gaming landscape, prompting counterparts like Ubisoft to adapt their structures by creating "creative houses" based on specific genres.
