Paradox Interactive (Buy, TP: SEK260.00) - Good entry point on negativ...

Q1 marked a soft start to 2024, which together with the recent negative news flow (game delays, technical issues in Cities: Skylines 2) has created a good entry point in the sector’s quality name. We are confident in the long-term profitability of the core portfolio, and like the optionality from new games like ‘Life by You’, set for release in Q2. We reiterate our BUY, but have trimmed our target price to SEK260 (270) on 7–5% lower 2024–2025e EBIT.

Good value, but lacking positive triggers

Near-term outlook still muted (tough comps high cons.) but long-term sector winner with 25% EPS CAGR '23-'26e. Reiterate BUY, TP of SEK 200 (210); 13-11x EV/EBITDAC '25e-'26e.

A tad softer growth and profitability in Q1

Paradox Interactive (Buy, TP: SEK270.00) - Focusing on Q2 releases

Q1 was fairly average for DLC and new releases, with ‘Cities: Skylines 2’ (CS2) DLC not enough to drive a resurgence in player activity. We have cut our 2024e EBIT by ~5% to reflect our lower near-term CS2 sales expectations, but remain confident Paradox will report strong earnings growth in 2024. We reiterate our BUY but have lowered our target price to SEK270 (280) ahead of the Q1 report, due at 08:00 CET on 25 April.

Paradox Interactive (Buy, TP: SEK280.00) - Set for strong 2024e earnin...

We reiterate our BUY and SEK280 target price following Q4’s strong top line but earnings hampered by the pre-announced SEK171m writedown of ‘Lamplighters League’. We have raised our 2024e sales by 5% and EBIT by 2%, with FX gains slightly offset by lower gross margin expectations. Continued ‘Cities: Skylines 2’ sales and multiple new releases in 2024e drive our forecast EBITDA growth of 25% YOY.

Paradox Interactive (Buy, TP: SEK280.00) - Strong potential in 2024e

We expect strong Q4 revenue, with the release of ‘Cities: Skylines 2’ (CS2) for PC and numerous DLCs, but with earnings hampered by the writedown of ‘Lamplighters League’. We have cut our Q4e EBIT on the somewhat underwhelming start to CS2, and reduced our 2024e EBIT by 5% mainly to reflect FX movements. We maintain our BUY, but have slightly lowered our target price to SEK280 (285).

Paradox Interactive (Buy, TP: SEK285.00) - Focus on Q4 onwards

We reiterate our BUY, but have lowered our target price to SEK285 (290) following a lacklustre Q3, for which we believe the market was braced. Still, sales and EBIT were significantly below expectations, and we have lowered our 2023–2024e EBIT by 7–2%. We still see promising prospects for Q4 after “a good start” to ‘Cities: Skylines 2’ sales, along with several major DLCs, ahead of a release-heavy 2024e.

Paradox Interactive (Buy, TP: SEK290.00) - BUY quality on weakness

We believe investors should look beyond a likely weak Q3 and focus on the growth opportunities from a busy release window from Q4 and onwards, with the release of ‘Cities: Skylines 2’ a key event. We have cut our 2023e EBIT by 15% (non-cash writedown announced on 10 October), but only fine-tuned our 2024e. The recent poor share price performance relating to a soft Q3e (with few releases) has created a buying opportunity, in our view; hence, we have upgraded to BUY (HOLD), but with a reduced targ...

Northern Lights

Paradox Interactive (Hold, TP: SEK300.00) - Back-end-heavy H2e

We reiterate our HOLD but have raised our target price to SEK300 (280) after the solid Q2 results, including 9–14% EBIT beats versus our estimate and consensus. We have increased our 2024e sales and EBIT by 6% each, but believe H2e earnings are likely to be skewed towards Q4e. While we see several positives in Paradox’s outlook, we find them well reflected in consensus of a 2024 EV/EBIT of c25x.

Paradox Interactive AB (Hold, TP: SEK280.00) - Niche game portfolio be...

We have raised our target price to SEK280 (260) and reiterate our HOLD after raising our 2023–2024e sales by c5%. We like the games pipeline set for H2, along with the increased release velocity, but continue to struggle with the rather full valuation (2023e EV/EBIT of c27x). Our near-term estimates are fairly in line with consensus ahead of the Q2 report, due at 08:00 CET on 27 July.

Paradox Interactive AB (Hold, TP: SEK260.00) - Still set to be a busy ...

Q1 sales were broadly in line with our estimate and consensus, but earnings missed significantly, driven by higher than forecast amortisation, including new, small game releases that did not meet the company’s expectations. Paradox still has a promising pipeline for 2023, including a significant number of releases as soon as May, in addition to the larger titles set for release later in the year. While our 2023–2024e sales are largely unchanged, we have cut our 2023e EBIT by c5% on the soft Q1. ...

Paradox Interactive AB (Hold, TP: SEK260.00) - Exciting release year a...

We have raised our target price to SEK260 and reiterate our HOLD ahead of the Q1 report (due at 08:00 CET on 27 April). Reflecting a strong games pipeline – including Cities: Skylines 2 in H2e – exceeding our expectations and thus an improved revenue growth outlook, we have raised our 2023–2024e revenue forecasts by c5%. Our estimates are fairly in line with consensus, and we believe a more bullish growth scenario ahead is discounted in the share price.

Northern Lights

Paradox Interactive AB (Hold, TP: SEK220.00) - Improved cost control p...

Q4 enjoyed record revenues and EBIT, driven by FX, healthy cost control and a solid release of ‘Victoria 3’. We have raised our 2023–2024e EBIT by 4–5% and our target price to SEK220 (205), while reiterating our HOLD. The increased release cadence, improved cost control and good cash generation bode well for profitable growth for 2023e and beyond, which we find well reflected in the 2023e EV/EBIT of c22x.

Paradox Interactive AB: 1 director

A director at Paradox Interactive AB sold 2,272 shares at 301.000SEK and the significance rating of the trade was 59/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years ...

Sector Fast Comment - US gaming market returned to growth in Oct

Spending on game content (software) +2% y-o-y in Oct Spending on mobile and hardware down y-o-y YTD spending -7%, up from -8% last month

Sector Fast Comment - European gaming market grew 1.5% in October

European gaming software sales +1.5% in October, y-o-y Victoria 3 off to a “strong start” (no. 9 best-seller) Console sales down, likely on tough comps for Switch

Northern Lights

Paradox Interactive AB (Hold, TP: SEK205.00) - Executing well with exi...

Revenue and earnings growth improved in Q3 for the fourth quarter in a row, this time supported by high DLC activity and FX. Looking ahead, we will focus on the progress of the new game ‘Victoria 3’ and the outlook for and timing of further new key releases. We have raised our 2023e EBIT by 6% and target price to SEK205 (195), but believe the resilient products are well reflected in the share price; we reiterate our HOLD.