Remedy Q4'24: FBC: Firebreak release draws nearer

Translation: Original published in Finnish on 2/13/2025 at 7:50 am EET.

We reiterate our Buy recommendation and EUR 19.0 target price for Remedy. The company's Q4 results were better than expected and game projects are progressing well in production. The outlook suggests that the company's EBIT should turn positive as early as this year, although the future reception of FBC: Firebreak remains a key variable. In the big picture, medium-term earnings expectations are weighted towards 2027, when Control 2, which has just entered full production, is very likely to be released. Given the earnings potential thereafter, we believe the current valuation of the stock looks attractive.

Q4 figures better than expected, although AW2 royalties were still very low

Remedy’s Q4 revenue grew by 13% to EUR 11.7 million which exceeded our EUR 9.6 million estimate. The higher revenue was also reflected in EBITDA (Q4’24:  The uptick in revenue came from development fees (Q4'24: 10.2 MEUR). Quarterly royalties (1.5 MEUR) were below our expectations (2.6 MEUR), with Alan Wake 2 generating less royalties than we expected (less than 0.5 MEUR according to our estimates). Most importantly, the game finally recouped its production and marketing budget at the end of the year. The game had sold over 2 million copies by the end of Q4, so our estimate of the sales needed to break even on the game ended up being correct.

FBC: Firebreak is in full production toward its planned release this year. According to Remedy, the external game test at the end of December was successful. We still expect the game to be released in Q3, but it could be as early as Q2. The Max Payne project continues to make steady progress in production. Control 2 also went into production in early February, and the project will be scaled up to full production later this year. Thus, the release we envisage for H1'27 seems a realistic assumption. For the 4th project, which is in early conceptualization, Remedy did not provide further details at this time.

Outlook foresees positive EBIT this year

In its outlook, Remedy expects revenue (2024: 50.7 MEUR) and EBIT (-4.3 MEUR) to increase compared to the previous year and that EBIT will be positive. The release of FBC: Firebreak is naturally central to growth, but in addition, royalties from Alan Wake 2 and other older games create a base for revenue. The Max Payne project and Control 2 will continue to generate significant development fees this year. We had previously expected Remedy's EBIT to remain in the red this year, making the outlook a positive surprise. Based on the Q4 report, we raised our earnings forecast for the current year, but otherwise our long-term assumptions are largely unchanged. We now forecast revenue of 65.8 MEUR (+30%) and EBIT of 1.7 MEUR for this year.

FBC: Firebreak sets the tone this year, but the potential of Control 2 is already on the horizon

We believe in Remedy’s ability to create multiple high-quality and successful games in the long term, and considering the growth and profitability potential this offers, the current valuation of the share (2025e EV/S 2.6x) is attractive. The long-term potential is indicated by the value of the base case of the DCF model at EUR 26. However, the model is very sensitive to the success of future games due to the fixed cost structure and self-publishing. This year, the release of FBC: Firebreak will certainly determine the direction of the stock, but in terms of medium-term value creation, Control 2 is a much more important project. For now, however, the stock market does not seem to have the patience to look beyond 2027. However, we believe that Remedy's stock will begin to better reflect the company's long-term potential at some point in the next few years, as long as game projects continue to move through the production pipeline toward release.