Embracer Group Loses Undisclosed $2 Billion Deal Amid "Challenging Year"

Embracer Group's quarterly financial results for January to March 2023 (its Q4) are now out, and they show growth in key areas such as net sales and operating profit margin, but it seems that the company's performance is falling short of expectations. The publisher's CEO Lars Wingefors describes the situation as a "challenging year" that was caused by many factors, including a "major strategic partnership" that fell through after months of negotiations.

The comments do not reveal the other party in this failed deal, but the company describes it as a "grounbreaking strategic partnership agreement that would have set a new benchmark in the gaming industry." The deal was for $2 billion in development revenue over six years, and Embracer says that it had a verbal commitment from the second party back in October 2022. There aren't that many entities in the game industry that can afford that level of investment, which have led some to speculate that it could be Amazon or Activision Blizzard.

The deal was apparently negotiated for seven months, with "several hundred people engaged on both sides." However, on the eve of the company's Q4 results, Embracer says that the deal was formally killed by the other party, which was "unexpected to the management and the Board of Directors of Embracer."

This setback caused Embracer to significantly change its financial outlook, saying that its adjusted EBIT (a measure of revenue) will now be 7 billion to 9 billion Swedish krona (roughly $650 million to $850 million) rather than 10.3 to 13.6 billion krona in financial year 2023 to 2024. It also caused the company's stock price to crater, with a daily loss of more than 40% as of this writing. It's worth noting that Embracer took $1 billion in funding from Saudi Arabia's Public Investment Fund, a decision that prompted scrutiny and criticism from those in the industry due to the country's human rights record in recent years.

Though it's clear that this deal had a negative impact on Embracer, it's not all bad news. Later comments note that Dead Island 2 sold over a million units in its first weekend and two million overall, which exceeded the company's expectations. That said, the company said that some in its "solid pipeline" of projects in development will require more time to bake, including several unannounced titles.