Interim report January - September 2020
Third quarter 2020
Revenues amounted to MSEK 494.8 (MSEK 282.6), an increase by 75 % compared to the same period last year.
Operating profit amounted to MSEK 187.7 (MSEK 93.1), an increase by 102 %.
Profit after financial items amounted to MSEK 187.0 (MSEK 92.9), and profit after tax amounted to MSEK 148.5 (MSEK 74.0).
Cash flow from operating activities amounted to MSEK 213.0 (MSEK 73.4), and cash flow from investing activities amounted to MSEK -236.4 (MSEK -32.5).
By the end of the period cash amounted to MSEK 600.0 (MSEK 434.6).
Earnings per share amounted to SEK 1.40 (0.70) after dilution.
Revenues in the quarter are mainly attributable to Cities: Skylines, Crusader Kings III, Europa Universalis IV, Hearts of Iron IV and Stellaris.
First nine months 2020
Revenues amounted to MSEK 1,360.1 (MSEK 908.0), an increase by 50 % compared to the same period last year.
Operating profit amounted to MSEK 552.6 (MSEK 310.0), an increase by 78 %.
Profit after financial items amounted to MSEK 549.4 (MSEK 310.1), and profit after tax amounted to MSEK 431.0 (MSEK 243.6).
Earnings per share amounted to SEK 4.07 (2.31) after dilution.
Important events in the third quarter 2020
The new game Crusader Kings III was released September 1, 2020. The game is amortised using a degressive amortisation method over 18 months, where 1/3 of the development cost is amortised in the first month after release.
The Group’s employees continue to work from home to reduce the spread of Covid-19.
The Paris-based development studio Playrion Game Studio was acquired on July 1, 2020.
The Finland-based development studio Iceflake Studios was acquired on July 16, 2020.
Comments from CEO
Royal quarter provides new revenue records
The third quarter of the year has for us to a large extent been about the launch of Crusader Kings III. Crusader Kings III is the third edition of our successful Grand Strategy franchise based on a player’s personal journey through the Middle Ages. When the review embargo was released shortly before launch, the game received an aggregate score of 91/100 on Metacritic, which is a collected rating of industry and gaming media reviews. It is our highest rating ever on Metacritic and it is, of course, extremely positive, but what makes me happiest of all is that the game was received with remarkable enthusiasm by our players. Over 19,000 reviews on Steam and over 1,000,000 units sold paints a clear picture: We have created a really good game!
The successful launch of Crusader Kings III is another proof of the value in owning and methodically developing our franchises. Crusader Kings III is, like most of our successful games, the result of several iterations of the game. Often the first game in a franchise is not a success, but instead lays the foundation for future sequels by building a player base, a brand, and the knowledge to gradually develop better games.
During the third quarter of the year, we once again delivered a record quarter in terms of revenue. Compared with the same quarter last year, our revenue increased by 75%, while revenue for the past twelve months has increased by 40% compared with the previous year. Profit before tax for the quarter was 101% higher than the same quarter last year and for the last twelve-month period, profit before tax was 55% higher than a year ago. However, I would like to point out, in the usual way, that our quarters are seldom comparable with each other since our business is not cyclical.
An important task in our business is to decide when we should continue to develop a game to take advantage of the long-term potential we see in the franchise, and when it is better to cancel further development and instead reallocate resources to projects that are expected to provide better returns. During the quarter, we decided to cancel further development of an unannounced externally developed game. As a consequence, we wrote down the full value of the game in September, which has reduced the quarter's earnings by SEK 28 million.
During the development phase of our games, for both games developed by our own studios and games developed by our external partner studios, we capitalise the development costs which are then amortised over 18 months from the game's launch. For the games we have launched so far, we have applied a linear amortisation model through which equal amortisation is made in each of the 18 months. For Crusader Kings III, we are instead applying a degressive amortisation model, where we have written off 1/3 of the game's development costs already during the game's launch month, 1/3 evenly distributed during months 2-6, and 1/3 evenly distributed during months 7-18 after the game's launch. This more forward-leaning amortisation model is more in line with how we expect revenue from Crusader Kings III, and similar games we plan to launch in the future, to be distributed. In the short term, the amortisation model means that the result decreases compared with a linear amortisation model, while the result is equally higher during the latter part of the amortisation period.
We continue to adapt our operations to the prevailing pandemic and, as an employer, do what we can to ensure the well-being of our employees while we continue to work from home. During the quarter, we organized webinars on the theme of mental health and initiated several different health-promoting activities.
In December, we will launch a new strategy game - Empire of Sin - which we have developed together with Romero Games. Empire of Sin follows Paradox's classic design philosophy: the game can be replayed several times with a new gaming experience each time, and as with many Paradox games, players are given the opportunity to modify the game themselves and share these mods with other players. While Empire of Sin retains these core Paradox features, it represents a step outside our usual comfort zone with its role-playing elements and 1920s gangster theme. In this way, the game is a natural and smooth step for us to expand our portfolio. I am delighted to end this very special, and in many ways challenging, year by launching a new game and I hope our players will enjoy it.
Ebba Ljungerud, CEO
Presentation of report
Ebba Ljungerud and Alexander Bricca will host a live stream to answer report and financial related questions on our Twitch channel on November 17 at 12:00 PM CET https://www.twitch.tv/paradoxinteractive.
Submit your questions before via our forum https://forum.paradoxplaza.com/forum/threads/paradox-q3-2020-report-and-livestream.1442026/ by e-mailing them to email@example.com or directly in the Twitch chat. The Twitch chat is open for anyone to view but to post comments or question you will need to create an account.
Recorded version of the presentation
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This disclosure contains information that Paradox Interactive AB is obliged to make public pursuant to the EU Market Abuse Regulation (EU nr 596/2014). The information was submitted for publication, through the agency of the contact person, on 17-11-2020 08:00 CET.