Swedish gaming company Embracer Group, the owner of the intellectual property catalog and worldwide rights to The Lord of the Rings trilogy and The Hobbit by J.R.R. Tolkien, has announced higher fiscal first-quarter revenue. The company reported a revenue gain of 47% for the April-June period compared to the same quarter of 2022, with organic growth excluding acquisitions at 20%. This financial update comes a year after the company unveiled the Lord of the Rings deal, along with several other acquisitions.
Embracer stated that its Entertainment & Services unit made a notable contribution to the revenue growth, with organic growth of 70%. The performance of Middle-earth Enterprises, driven by strong licensing revenue for The Lord of the Rings, was well ahead of expectations. The company also mentioned several external projects based on The Lord of the Rings IP, including the successful release of the Magic: The Gathering trading card game The Lord of the Rings: Tales of Middle-earth and the upcoming PC/Console survival-crafting game The Lord of the Rings: Return to Moria. Embracer expressed excitement about the growth potential of the IP through these new products.
Embracer’s earnings, reported as adjusted earnings before interest and taxes (EBIT), also grew in the first quarter. The company described the improvement as notable and revealed that it exceeded management’s expectations for the quarter.
However, in June, Embracer announced plans for cost cuts and restructuring. This included layoffs, the sale or closure of some gaming studios, and the appointment of interim executives. The company aims to undertake a comprehensive restructuring program to transform from a heavy investment mode company to a highly cash-flow generative business. The specific number of layoffs was not immediately disclosed, but Embracer’s headcount was around 17,000 at the time.
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Other cost-cutting measures outlined in June included closing down or selling some gaming studios, terminating or pausing ongoing game development projects, decreasing spending on non-development costs, and reducing third-party publishing. The company plans to focus more on internal IP and increase external funding for large-budget games.
Embracer’s CEO, Lars Wingefors, expressed confidence in the restructuring program, stating that the company is on track to deliver and emerge as a stronger company. The “initial actions” of the restructuring program have included closures and reducing the number of projects and studios, as well as implementing cost-saving initiatives. Embracer is also prioritizing external funding for larger projects and exploring potential divestment opportunities. The company expects further savings after completing a global review of its existing pipeline, which is currently underway.
Overall, Embracer Group is experiencing revenue growth and positive earnings performance in its first quarter. While undergoing a comprehensive restructuring program, the company aims to optimize its return on investment and become a highly cash-flow generative business. With a strong lineup of projects based on The Lord of the Rings IP and other exciting products in development, Embracer is well-positioned for future success in the gaming industry.
