Remedy Q3 on Tuesday: Eyes on the reception of Alan Wake 2 during launch weekend

Translation: Original comment published in Finnish on 10/24/2023 at 6:36 am EEST.

Remedy will report its Q3 results on Tuesday October 31, at 9.00 am EEST. We will review the results and talk our own gaming experiences of Alan Wake 2 in Remedy earnings live starting at 8.50 am (in Finnish). AW2 will be released on October 27, so we'll see the game's critic reviews and initial player reception just a few days before the Q3 report. According to preliminary information, the first critic reviews will be published on Thursday afternoon (EEST) and these are much more important data points for Remedy's investor story than the Q3 report. Naturally, also in the Q3 report, all eyes will be on the data from Alan Wake 2. We currently expect Alan Wake 2 to start generating royalty income for Remedy from Q2'24 onwards, so the Q3 figures will still reflect the ongoing investment phase this year, just like in previous quarters.

We expect development fees and royalty income to improve year-on-year

We forecast Remedy's Q3 revenue to increase by 23% from the low level of the comparison period to EUR 9.7 million. The volume and timing of development fees is again uncertain, as during Q3, Alan Wake 2 was in the final stages of production. In recent quarters, the project has already gradually freed up staff for other projects, which has led to a slight increase in development fees. In terms of royalty income in Q3, it will be particularly interesting to see for the first time the impact of Alan Wake Remastered, whose marketing and production budget was cleared during July. The game was available for free download on Sony's PlayStation Plus service in July (Sony pays a fee for this), which helped to recoup the costs. Recently, the marketing efforts for Alan Wake 2 have added to the buzz around the remaster. Our royalty forecast (Q3'23e: 0.7 MEUR) is on the conservative side for the quarter.

Earnings still clearly in the red in the investment phase of this year

In 2023, Remedy's investments in game projects under development will only increase from the previous year, so it's no use expecting miracles from the company's results. The company’s outlook also guides for revenue to decline and a loss-making operating result. With low royalty income, increasing recruitment, external game development and rising other costs, we expect EBIT for the full year 2023 to be negative at EUR -14.3 million (2022: -0.6 MEUR). In our view, H2 profitability relative to the first half of the year is supported by lower external development costs, particularly in the production phase of AW2. Thus, we expect the operating loss to shrink in Q3 (-2.0 MEUR) compared to the loss rate of the first half of the year (H1'23: 10.4 MEUR).

Preliminary information suggests that Alan Wake 2 critic reviews to be published on Thursday

Alan Wake 2 will be released on Friday, but the critic reviews - which will be an important data point for the game - are expected to be published already on Thursday A quality game with good reviews (Metacritic >80) is a good basis for building a long tail of sales for years to come. This was the case with, e.g., Control (Metacritic: 84/100). Now Alan Wake 2 is already a familiar game brand, so with similar estimates the sales potential should be even better, although there are many other variables that affect sales. If Alan Wake 2 were to strike review gold (Metacritic >90), like Spider-Man 2 did a while ago, our assumptions about the game's sales would likely be under upward pressure. All in all, the weekend ahead is a very exciting one and so far the initial indications are that players (including myself) will be able to enjoy a quality gaming experience in the world of Alan Wake 2. We've discussed Remedy's ongoing game projects and our assumptions about Alan Wake 2's sales in more detail in our extensive report published in September.