Earnings call transcript: EG7 Q3 2025 sees revenue decline, stock drops 22%

Enad Global 7 AB (EG7) reported its third-quarter 2025 earnings, revealing a 24% year-over-year decline in net revenue to SEK 355 million. The company’s stock price reacted sharply, falling by 22.73% in pre-market trading, reflecting investor concerns over the financial results and future outlook. Despite the challenging market conditions for small to medium-sized publishers, EG7 remains optimistic about the growth potential of its live service game, Palia.

Key Takeaways

• EG7’s Q3 net revenue fell 24% YoY to SEK 355 million.
• Stock price dropped 22.73% in pre-market trading.
• Palia showed significant growth in user engagement and revenue.
• The company maintains a strong cash position with SEK 396 million.
• Cold Iron’s game release delayed to Q3 2026, requiring additional investment.

Company Performance

EG7’s overall performance in Q3 2025 was marked by a significant decline in net revenue, which fell 24% compared to the same period last year. The decrease was attributed to challenging market conditions for small to medium-sized publishers. Despite this, the company has maintained a stable revenue base, with 88% of its revenue coming from predictable live service and back catalog titles. The company also reported an adjusted EBITDA of SEK 63 million, representing an 18% margin.

Financial Highlights

• Net Revenue: SEK 355 million (24% YoY decline)
• Adjusted EBITDA: SEK 63 million (18% margin)
• Last 12 Months Net Revenue: SEK 1,702 million
• Cash Position: SEK 396 million
• New Revolving Credit Facility: SEK 100 million (unutilized)

Market Reaction

Following the earnings release, EG7’s stock price experienced a substantial decline of 22.73% in pre-market trading. This drop reflects investor concerns about the company’s revenue decline and the delay in the release of Cold Iron’s game. The stock’s performance was also influenced by broader market trends affecting small to medium-sized publishers, which have been facing increased competition and market saturation.

Outlook & Guidance

Looking forward, EG7 remains optimistic about the growth potential of its live service game, Palia, which has seen a 77% increase in monthly active users since April. The company expects stability in its Daybreak portfolio in 2026 and continues to evaluate merger and acquisition opportunities. Despite the delay in Cold Iron’s game release to Q3 2026, EG7 is committed to investing in quality over rapid expansion.

Executive Commentary

CEO Ji Ham emphasized the company’s cautious approach in the current market environment, stating, "We will be patient and highly selective in deploying capital to maintain a solid balance sheet." He also highlighted Palia’s potential, saying, "We believe Palia has a real shot at becoming one of the leading cozy live sim games in the industry."

Risks and Challenges

• Market Saturation: Increased competition in the multiplayer online games sector could impact growth.
• Delayed Game Releases: The delay of Cold Iron’s game could affect future revenue streams.
• Economic Conditions: Macroeconomic pressures may influence consumer spending on entertainment.
• Capital Allocation: Selective capital deployment may limit growth opportunities.
• Currency Fluctuations: Changes in exchange rates could affect financial results.

Q&A

During the earnings call, analysts focused on the delay of Cold Iron’s game and its impact on future revenue. Questions were also raised about Palia’s growth strategy and the performance of Daybreak’s games. Executives addressed these concerns by emphasizing their commitment to quality and strategic investments in high-potential projects.

Full transcript - Enad Global 7 AB (EG7) Q3 2025:

Fredrik Rydén, Deputy CEO and CFO, EG7: Welcome, everyone, to EG7’s third quarter earnings release. My name is Fredrik Rydén. I am Deputy CEO and CFO, and with me in this call, I have my colleague and the company CEO, Ji Ham. We will start with a presentation and then end with a Q&A session. I hand it over to you, Ji.

Thanks, Fredrik. Thank you for all joining us. Let’s go to the first slide. For Q3, net revenue came in at SEK 355 million, with adjusted EBITDA coming in at SEK 63 million, representing an 18% margin. Year-over-year net revenue declined by 24%. Without the adverse effects of FX, year-over-year decline was lower at 16%. Currency movement has been exaggerating the decline throughout this year, unfortunately, because of the significant volatility with the exchange rate over the last 12 months. Next slide, please. Some notable business unit updates here, starting with Big Blue Bubble. Results came in below expectations, a tough quarter for them. Net revenue declined by 27% in local currency and 34% in SEK. Reasons for the decline were primarily driven by anniversary content for this year performing worse than last year.

Active player base declined with lower user engagement and acquisition for the quarter, with the anniversary content underperforming. Core in-game KPIs continue to remain steady and healthy. However, the underperformance appears to be limited to the user acquisition funnel. The team is actively working to improve user acquisition to return to prior higher levels. As for Daybreak, net revenue declined by 7% in local currency and 15% in SEK. For accounting and reporting, net revenue shows a decline, but sales actually demonstrated growth. We track another KPI called gross revenue in local currency, which actually increased year over year. Gross revenue is before platform fees and excluding revenue deferral accounting. It is more of a cash basis number for sales, but that number at the top line demonstrated growth for the quarter.

The main growth drivers for the period for Daybreak included Palia, Lord of the Rings Online, Dungeons and Dragons Online, and DC Universe Online, all of which are performing nicely with revenue increases and strong profitability. Titles that are performing softer than expected include EverQuest and EverQuest 2, down from the big anniversary year in 2024, where EverQuest turned 25 and EverQuest 2 turned 20 years old. Also, EverQuest was negatively impacted by the Hero’s Journey, an unauthorized title that was out for a number of months, which for now has been successfully closed down. That is no longer an issue, but nonetheless, it did impact EverQuest negatively throughout the year until its closing down. Magic: The Gathering Online card sets this year have been generally underperforming, contributing to lower results there.

Overall, on a consolidated basis, Daybreak is demonstrating growth at the top line gross revenue level, which we are happy with. Piranha also delivered a solid quarter. Net revenue grew by 112% in local currency and 93% in SEK. MechWarrior 5 Mercenaries DLC 7 performed better than we expected. It’s on trend to be the best performing DLC out of the seven. Nice outcome for a DLC for a six-year-old title. Next up now is DLC 2 for Clans in December. Overall, Piranha is performing at a steady and profitable level, and we expect them to continue at that level for the first year of the future. Next slide, please. Now, on the product front, a couple of updates starting with Palia. Palia was one of the main highlights for Q3. Fall seasonal content release went out with a nice success.

Animal husbandry feature, which is a major system and feature for the title, shipped with the update and reached peak engagement levels along with that update seen back in May, along with the console release, which was nice. Game is trending well with improvements across all the core KPIs. MAU increased by 77% when comparing September number to April right before console release. Monthly average revenue per user also increased 141%, and payer conversion rate increasing 99%. We’re quite happy with the performance today, excited for its long-term future. We believe it has a real shot at becoming one of the leading cozy live sim games in the industry, with the key differentiation being it’s the only large multiplayer online game that’s serviced as a live service title in the cozy live sim genre. We expect it to continue to perform nicely going forward.

Now, for Cold Iron, we have decided to delay this title. New target release window now is Q3 2026. Team has made good progress but requires more time to finalize content as well as to achieve higher quality. Ultimately, the decision here is to prioritize quality and invest the additional time and resources accordingly. Additional investment is expected to be approximately $7.7 million total. Daybreak plans to invest $6.5 million of this, and Cold Iron shareholders co-investing $1.2 million. We continue to remain bullish in the project potential and expect returns in excess of our minimum target returns. Next slide, please. Fredrik, over to you. Thank you, Ji. Next slide, please. Third quarter was compared with last year relatively quiet and with few smaller content releases, generating a net revenue of SEK 355 million, representing 16% FX neutral decline. The lower net revenue is mainly explained by 35% negative FX movements.

One successful title release in Q3 last year from FireShine generating SEK 54 million. Big Blue Bubble trending down, as Ji mentioned. Strong anniversary campaign in EverQuest in Q3 last year, including a fairly strong revenue recognition rollover effect from Q2 2024. Adjusted EBITDA was SEK 63 million, which gave an 18% adjusted EBITDA margin. LTM net revenue was SEK 1,702 million, with the LTM adjusted EBITDA margin at 18%, which is in line with a historic average. Next slide, please. As earlier pointed out, we have a foundation of more predictable revenues and cash flows. More predictable revenue comes from the live service and back catalog titles. Net revenue from this portfolio was SEK 311 million in the quarter, corresponding to 88% of net revenue for the group in the quarter. Of the last 12 months, net revenue amounted to SEK 1,702 million, of which SEK 1,258 million derived from the more predictable revenue base.

LTM more predictable net revenue has varied less than plus minus 2% in the past five quarters. Following that stability, that portion of revenue has been stable at 70-74%. Next slide, please. Daybreak is the largest contributor to the net revenue, generating $180 million. This corresponds to a decline from Q3 last year. The decline is attributable to challenging comparable figures following the successful anniversary campaign in EverQuest last year and $18 million in unfavorable currency movements. As Ji already pointed out, the underlying gross revenue or total bookings, what the customer actually bought from us, has increased Q3 to Q3. We do recognize net revenue over the period when the customer is using what is acquired from us, which means that we now and then have this rollover effect between quarters. The adjusted EBITDA came in at $35 million, corresponding to a 19% EBITDA margin.

Big Blue Bubble delivered net revenue of SEK 55 million, corresponding to a 34% decline. Currency fluctuation negatively impacted net revenue by SEK 6 million, and adjusted EBITDA amounted to SEK 25 million, representing a 45.6% margin. Big Blue Bubble had lower than expected new customer intake. We are evaluating various mitigating actions to increase that KPI going forward. Next slide, please. FireShine had, as expected, a fairly quiet third quarter, specifically compared to the third quarter last year when the company successfully published one digital title generating SEK 53 million. Net revenue in FireShine was SEK 59 million in the quarter, and adjusted EBITDA was SEK 1 million. Petrol has been stable following the reach out to new business areas and the cost optimization from the beginning of the year. Petrol generated SEK 30 million with a 5% adjusted EBITDA margin. Next slide, please.

Piranha delivered a net revenue of SEK 30 million with an adjusted EBITDA of SEK 10 million, corresponding to a 33% margin. The cost savings measures executed in the beginning of the year, together with the successful launch of the seventh DLC for MechWarrior 5: Mercenaries, are the two major contributors to the strong performance. The seventh DLC is, as Ji mentioned, becoming one of the best-selling DLCs for Mercenaries. Next slide, please. Our financial situation remained solid. We invested SEK 91 million, of which SEK 51 million in Palia and Cold Iron Studios, and that is what we could define as new growth initiatives going forward. The level of investments in the more predictable revenue base remained low. Operational cash flow increased to SEK 51 million. This figure was negatively impacted by a non-recurring payment of SEK 8 million.

If we would adjust for that, the operational cash would have been similar to SEK 60 million. By end of the quarter, we had a net cash position and SEK 396 million in cash. We also successfully signed a new revolving credit facility of SEK 100 million, which is unutilized by the end of the quarter. I hand it back to you, Ji.

Ji Ham, CEO, EG7: Thanks, Fredrik. All right, let’s go to the summary slide. Next one, please. Okay. In summary, Q3 was a down quarter with some hits and misses for us. Palia is performing well, and we’re looking forward to its continued growth. Cold Iron game delay is a disappointment. It’s not going to be contributing to our 2025 performance, but we expect it’s going to provide a nice boost for 2026. We believe providing with additional time is the right decision to maximize returns for the project. On the industry front, the market still remains challenging for small to medium-sized publishers, and we intend to continue to operate cautiously because of that. We will be patient and highly selective in deploying capital to maintain solid balance sheet during this time. That concludes our earnings presentation, and now we will transition to Q&A.

Fredrik Rydén, Deputy CEO and CFO, EG7: Thank you, Ji. The first question I have here is from Ilya Ivanov. What are the key reasons to delay the game to Q3 2026 and to increase the investment with another $6.5 million? To what extent is this driven by expanded scope, licensor requirements, or earlier planning assumptions?

Ji Ham, CEO, EG7: Yeah, I think that’s a great question. I would say it’s a combination of several things. Ultimately, the content development for a video game, whether it’s this game or many other games that are out there, takes time. In order to achieve quality, initial estimate versus actual execution could differ, right? In this case, some of that has happened where there’s good progress being made throughout the development across the board. At the same time, in order to finalize, get those features and content to finalization at the quality level that we seek for commercial success is what’s going to be requiring additional time for. We estimate that that requires us to be able to push this game out to third quarter 2026. The investment that we’re making is.

Fredrik Rydén, Deputy CEO and CFO, EG7: I think we lost Ji there, so I will go to the next question. It’s a question from Kara Ducky and Yadma from Redeye. What is the total investment so far in Cold Iron, and how come the investment goes down in Q3? I’ll try to answer this. The first decision that we had was to invest $23.1 million. In the first quarter this year, we decided to increase that with another $6.5 million. In total, $29.6 million before the press release yesterday. That was all settled in October. From there on, we will start to invest on this new decision. Adding another $6.5 million to that, the total investment is planned to be $36.1 million. It’s booked in US dollars, and it’s revalued to SEK in the balance sheet in the group because our presentation currency is Swedish krona.

That’s why it looks like it has gone down, but the US dollar amount remains. Is Ji back in the call now?

Ji Ham, CEO, EG7: Yep, I’m here.

Fredrik Rydén, Deputy CEO and CFO, EG7: Yeah, all right. I think we lost you there for a second. Here is another question also from Ilya Ivanov. Is Cold Iron’s $1.2 million co-investment new equity from its shareholders or reinvested profits from EG7?

Ji Ham, CEO, EG7: Yeah, that’s investment from the shareholders, it’s not from EG7.

Fredrik Rydén, Deputy CEO and CFO, EG7: The commercial terms for which have been adopted in accordance, how have the commercial terms and recoup structure changed as a result of the increased budget, and how does this affect the allocation of risk and return between the parties?

Ji Ham, CEO, EG7: Yeah, I think from the beginning, the deal structure was meant to provide risk or lower risk and capital preservation priority for the publisher. So investment that Daybreak is making has priority over investment that Cold Iron shareholders have made. This additional investment that’s going in would be also recoupable at the top of the waterfall after the license fees. Thereafter is when any profit split would happen. From a risk allocation perspective, we’re going to maintain the same structure that we’ve utilized to date, where Daybreak has protection over capital that’s junior to it from the shareholders of Cold Iron.

Fredrik Rydén, Deputy CEO and CFO, EG7: Here’s a question from Yadma on Redeye. Big Blue Bubble, how should the soft player intake in My Singing Monsters be seen? Is there a risk of faster revenue decline going forward?

Ji Ham, CEO, EG7: Yeah, I would say it’s too early to say. The lower user acquisition number was a surprise given that the game has been performing quite steadily over the last 18 months. Over the last quarter, there was a bigger drop than we expected. That doesn’t seem normal in terms of what the trends look like. We are investigating that as to what caused that lower position at the top of the funnel with platforms like YouTube and TikTok and Instagram. Along with that investigation and evaluation, we are devising, coming up with ideas and strategies of trying to shore that back up to the prior levels.

Subject to how those perform, we would be able to know more as to whether this means a new trend line versus a temporary blip where we could recover back to prior levels that we’ve seen over a prolonged period last year.

Fredrik Rydén, Deputy CEO and CFO, EG7: Another question from Yadma. What was behind the strong profitability in Daybreak? Is it sustainable going forward? I assume that this question comes also from the lower profitability that we had in Q2 from Daybreak in conjunction to the release of Palia.

Ji Ham, CEO, EG7: Yeah, so there’s a number of titles that are performing well. Palia is at the top of the list given that acquisition happened last summer. Along with the console release and continuing addition of new compelling content, we expect that that’ll continue to build in terms of population and revenues and et cetera. Third quarter was a good one, and we expect Q4 to be a nice quarter for the title. In 2026, we’re very excited for Palia with additional content and big features that we’re planning for. Additionally, some of our titles, including Lord of the Rings Online, Dungeons and Dragons Online, and DC Universe Online are all performing quite well.

Revenue, engagement from players, and the overall conversion for monetization for those three titles, the teams have done an excellent job with great additional content this year with new server, also improving customer experience with new server updates that help with the overall experience. That also was a nice contributor to their better performance. DC Universe Online metrics are up across the board in terms of all the core KPIs, and we expect that momentum to continue for the near term. Those three titles are doing really well. There are softer spots, as we mentioned, EverQuest, EverQuest 2. Comparison not great compared to 2024 when it was big anniversary for both titles. The hero’s journey for EverQuest was a distraction for the title, which resulted in a lower performance for EverQuest in particular this year.

We expect those titles to stabilize and turn the corner as we go into 2026. Magic: The Gathering Online, highly dependent on how Magic: The Gathering, the IP and their card set, content cadence, et cetera, this year, a little softer than what we expected. Nonetheless, a highly dedicated player base that continued to come and enjoy the title, highly profitable, so we’re happy with that. Lastly, PlanetSide 2, we did not mention it, but that title has continued to decline after we sold the IP a few years back. We are continuing to support that, but the numbers have become less significant for the overall portfolio.

When you look at the overall Daybreak portfolio, we remain quite optimistic for 2026 with a number of titles that are doing well and that we expect that momentum to carry into 2026 and stability as well as potential growth there as well.

Fredrik Rydén, Deputy CEO and CFO, EG7: A question on Palia. What will drive Palia’s growth going forward? Content and/or monetization?

Ji Ham, CEO, EG7: I think it’s both. We have a pretty compelling content roadmap that we have communicated where we are doing monthly updates, smaller updates, but we have three larger quarterly seasonal updates and one big annual update. Those updates will bring new systems and features to continue to take the game towards 1.0. Along with that, we expect to improve core metrics that are really important for us to be able to grow a lot of the engagement and retention metrics and the monetization on top of that. User acquisition, being able to bring in more players. This game has a great organic word of mouth user acquisition that’s been very successful.

On top of that, there’s plans to be able to invest in user acquisition spend as well as we shore up the retention metrics even further from their level now, which has improved quite significantly from last year. As we continue to make progress there, increasing user acquisition and being able to grow the player base, we have about 9 million registered users live to date. When you look at what we consider to be competitive titles or aspirational titles, games like Stardew Valley and Animal Crossing and The Sims from EA, you’re looking at population for each game in excess of, like Stardew Valley, over 30 million, Animal Crossing, which had sold over 47 million, and you have The Sims, which had over 70 million registered users as of a couple of years back. We do think the genre and the market’s quite deep.

With only 9 million players so far that have come to play and enjoy Palia, we expect that there’s significant more depth for us to continue to grow this game over the next number of years.

Fredrik Rydén, Deputy CEO and CFO, EG7: I have a combination of a few different questions here. How confident are you in the Q3 release window? What is the risk of additional capital requirements for the Cold Iron game from here? Is Q3 next year really an attractive release window given that GTA will come out in November and there are some discussions about Call of Duty to be moved to Q3 next year?

Ji Ham, CEO, EG7: Yeah, you know, based on everything that we know, with a lot of the detailed planning that went into arriving at the new schedule, we have high confidence today. That’s the reason why we were able to provide a narrower window for the target rather than saying second half or 2026, we’re able to guide towards that Q3. As for potential impact from GTA 6, the title has now been delayed a couple of times. Now, I guess the speculator, they’ve announced that November is when they would expect to release the title. It’s really hard to say and hard to plan our release around a GTA 6 release date, although I would say Q3, depending on what part of Q3, if GTA 6 is coming out in November, it does give us enough buffer to be able to get the game out initially successfully.

This is a premium title, not meant to be a live service title. As a premium title, we expect a significant portion of our revenues to come in the first two to three months upon release. We do think Q3 still makes sense there. Now, as to whether other big AAA titles would move out of the way with GTA 6 being pushed into November, that may or may not happen. It is speculation at this point. If it does happen and if there is a Call of Duty that is moving into Q3, then we would need to adjust accordingly at that time as we find out more. For now, based on information that we know, we do believe that Q3 would be a great time for this game to come out.

Fredrik Rydén, Deputy CEO and CFO, EG7: I think we’ll take the last question from Yadma at Redeye. What is holding back M&A? Is it price of potential targets, a risk profile of the targets? Can you give some more details?

Ji Ham, CEO, EG7: Yeah, you know, we are quite actively looking at opportunities. I think at this point, we passed on a lot of opportunities. I think everyone knows the market has seen quite a lot of distress over the last couple of years. This year is less, but nonetheless, there’s still a lot of headlines about studios shutting down, the last of which is NetEase just shut down three or four of their studios over the last two months. There are more special situation opportunities that are out in the marketplace. We are looking at a lot of them. At the end of the day, we’re being very cautious.

We are trying to find situations similar to Singularity 6 where there isn’t a significant capital outlay upfront and that, you know, based on what we’re able to contribute, based on our expertise, that we’re able to create an underwrite and upside scenario that we have real confidence in. Along with the criteria that we’re putting on, and then we’re being quite strict about it, we passed on most of them. At the same time, there’s still some pipeline of transactions that we’re evaluating now. We are hoping over the next 12 months that we would be able to close on some additional transactions similar to Singularity 6. At the same time, it is opportunistic. Based on whether we’re able to ultimately find the right fit is what will dictate whether we’re able to close on some of these transactions or not.

I would say pricing is probably not one of the things that are driving us away from transactions. I think pricing for transactions are quite reasonable in this marketplace. We are active, and then we hope to be able to transact. Once again, we are being cautious and highly selective.

Fredrik Rydén, Deputy CEO and CFO, EG7: With that, the answer, we would like to conclude the Q&A session. If you have any further questions or if it is something that we have not answered, just reach out to us and we will reply to that in accordance. With that, we would like to thank you for listening in today and have a good day.

Ji Ham, CEO, EG7: Great. Thank you, everyone.

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