Embracer has reported disappointing results for the second quarter of 2024, reporting a large drop in net sales of 21% across the gaming group to SEK 8.6 billion ($782 million), with net sales of its entertainment and services also dropping by 10%.
Adjusted operating profit fell by 33% to $109 million between July and September 2024, missing projected forecasts.
In its entertainment and services division, which also includes comic book publisher Dark Horse Media, Embracer reported a 14% drop in organic growth, which it put down to “lower activity and tough comparison figures year on year” within subsidiary Middle-earth Enterprises, the holding company for “Lord of the Rings.”
While Middle-earth Enterprises had a “slow quarter” year-on-year due to a lack of new games releases, it did provide “higher film revenue than expected,” the company reported.
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Embracer snapped up the Tolkien IP in 2022 for $395 million.
By far the biggest drop across Embracer’s stable was in its PC/console games division, which saw a net sales decrease of 46%. Mobile games sales also dropped 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 from the releases of ‘Remnant II’ and ‘Payday 3’ last year,” said CEO Lars Wingefors.
Meanwhile the PC/Console game “The Lord of the Rings: Return to Moria” was released on Steam and Xbox earlier this summer 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 rocky few years for the Swedish-headquartered conglomerate, which has undergone a vigorous restructuring and divestment program, it is set to split into three publicly traded companies by 2025. One, 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 be dedicated to managing the “The Lord of the Rings” and “Tomb Raider” IPs as well as developing triple A games – are set to follow.
“We are focusing on the best allocation of companies and assets in our future structure,” Wingefors said in a statement on Thursday. He also unveiled the sale of subsidiary puzzle game mobile developer Easybrain to digital games company Miniclop for $1.2 billion on Thursday.
On the horizon, the company is pinning its hopes on upcoming anime “The Lord of the Rings: The War of the Rohirrim,” which will release in the U.S. and internationally next month, with Wingefors saying he expects “notable earnings growth year on year” due to the film. Embracer’s quarterly report also noted there is “increasing anticipation for the release, with encouraging fan reactions.”
Q3 has so far seen the release of games “LEGO® Monkey Palace” and “The Lord of the Rings: Duel for Middle-earth,” which are both showing strong traction according to Embracer while “Star Wars: Unlimited” is due to release Set 3 “Twilight of the First Republic,” which they are also hoping will buoy sales.
“Over the past 15 months, we have created a stronger foundation for long-term value creation, lowering our net debt and our capex,” said Wingefors. “We have many high-performing and efficient companies, several with industry leading margins. However, we acknowledge 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 firmly addressing ahead of the spin-offs.”