Hi everyone — welcome to another issue of Naavik Digest. If you missed our last one, be sure to check out our breakdown of Capcom’s most recent earnings announcement and analysis on the company’s remarkable turnaround over the last decade.

In this issue, we have more earnings coverage, including a roundup of Xbox, Ubisoft, and Stillfront's most recent quarterly results and top takeaways about the state of the games market. We also have a deep dive from our friends at Lightspeed Venture Partners on the potential impact of AI on game development.

#1 Gaming X AI Market Map: The Infinite Power Of Play

By Moritz Baier-Lentz & Kishen Patel / Lightspeed Gaming

Earningspalooza Robot
Source: Inworld AI

This is a preview of a cross-published deep dive written by our friends at Lightspeed Venture Partners, which has invested over $350 million in the gaming industry so far.

Many of the past technological and cultural tailwinds felt like incremental building blocks. (By the way, the gaming industry has only seen one “down year” since 1997—in 2022, coming out of an inflated 2020 and 2021 post-COVID influx; 2023 is up again.)

In contrast, the dawn of artificial intelligence and procedural intelligence appears more akin to a platform shift in line with the rise of the consumer internet around the start of the millennium, or the introduction of the mass-market mobile smartphone in 2007.

Historically speaking, in platform shifts like these, generational companies won’t only incrementally improve upon existing workflows with faster, better, or cheaper tools; they will create completely novel, previously impossible user experiences—like intelligent non-player characters (NPCs) and generative agents that go far beyond pre-programmed decision trees and limited narrative choices.

Zynga’s rise through mobile, casual gaming modalities and Rovio’s innovations in tactile touchscreen experiences are great examples from the gaming world, where a newcomer capitalized on a new reality of consumer experiences despite the incumbents’ (in this case, Electronic Arts or Activision) perceived resource advantage. A textbook example of corporate inertia and the innovator’s dilemma.

At Lightspeed, we expect the shift to artificial intelligence and procedural generation will be no different. Those unable to deliver these new experiences in their games will be left behind as audiences will continue to prefer the most immersive experiences. Much of what seems like a fever dream today will be considered table stakes in a matter of years—not decades.

#2 Earningspalooza (Part 1)

By Aaron Bush, Naavik Co-founder

Earningspalooza Earnings
Source: Market Insights

Earnings season is upon us once more, so let’s take the opportunity to check in on some of our industry’s most important companies. We recently covered Activision Blizzard’s and Capcom’s results, and we’re diving into three more companies today. We’ll also likely revisit several more as more game earnings announcements drop over the course of the month. As always, our goal is not to regurgitate press releases, but instead to cut to the chase on what matters and how it plays into broader themes and efforts across the industry. Let’s jump in.


Earningspalooza Green Logo
Source: The Verge

The Q4 Highlights(all year-over-year):

  • Total gaming revenue grew 1%
  • Content and services revenue grew 5% 
  • Hardware revenue decreased 13%
  • Game Pass hours played increased 22%

Top Takeaways:

  • This quarter is notable because it might be the final snapshot of Xbox’s business before Activision Blizzard gets thrown into the mix. Naturally, content revenue will become an even larger weight (versus hardware) going forward.
  • Hardware clearly continues to heavily lag behind PlayStation, which has seen accelerating hardware sales this year (and just celebrated crossing 40 million PS5 units sold).
  • The next major catalyst is Starfield’s September launch, but even so, management is only projecting low single-digit growth next quarter.

Top Questions:

  • When will the Activision deal close? The deadline is now October 18th, but it could close sooner.
  • Where are the needle-moving games? That’s been the largest critique of Game Pass, and one that Activision Blizzard — plus games like Bethesda’s Starfield — should help correct. But also keep an eye on Lies of P, Payday 3, Forza Motorsport, Hollow Knight: Silksong, Flintlock, S.T.A.L.K.E.R 2, Ark 2, Avowed, Fable 4, The Outer Worlds 2, State of Decay 3, and more. Perhaps none of these hold nearly the same weight as Call of Duty or Starfield, but the pipeline of opportunity is clearly growing.
  • Is subscription even good for the industry? The answer is “it depends,” since subscriptions come in varying forms. But this question holds outsized importance for the future of gaming economics. While consumers will clearly benefit in the near term, and Xbox could steal market share as a result, if subscription economics heavily cap the upside for third-party developers and publishers, we could see some pushback.


Earningspalooza Ubisoft
Source: Insider Gaming

The Q1 Highlights(all year-over-year):

  • Net bookings fell 8.7% — and all types of bookings (digital, recurring, and back-catalog) were down.
  • Ubisoft is only required to share full financials twice a year, so for Q1 it didn’t provide any financial details other than sales. That likely means its profitability metrics were not good.

Top Takeaways:

  • Despite the weak results, there are two key signs of progress: the pipeline and cost cutting. Ubisoft’s results also still beat expectations, which immediately sent the stock up about 10%.
  • The pipeline is stronger than it’s been in a long time: Assassin’s Creed Mirage, Star Wars Outlaws, Avatar: Frontiers of Pandora, another unannounced large game, and of course Skull & Bones (if it ever releases). If most of these games prove high-quality, sales should nicely turn around.
  • CEO Yves Guillemot’s statements reinforce the company’s focus on “significant cost reductions.” These reductions could be more aggressive, but better revenue drivers paired with lower costs is a good recipe for major improvement.
  • Furthermore, the company announced that Tencent’s Level Infinite will publish Assassin’s Creed Codename Jade, the franchise’s major foray into mobile. This should eventually prove to be a win for Ubisoft down the line and is likely a superior strategy for Ubisoft to tackle mobile in general. 
  • A month ago, I called a market bottom for Ubisoft given how beaten up the company and stock were, despite the early signs of progress. Since then, the stock has risen 20% (and is up 58% in the past six months), so the market is catching on. Don’t be mistaken, though: A change in sentiment is not the same as Ubisoft actually executing on these opportunities. There’s still much for the company to prove.

Top Questions:

  • Can Ubisoft deliver multiple high-quality AAA games? That’s the ultimate question. If Assassin’s Creed Mirage, Star Wars Outlaws, and Avatar: Frontiers of Pandora are mostly well-reviewed and excite fans, then the company’s current top-line drag will rapidly flip into a major tailwind.
  • Can Ubisoft become even more ambitious in cost-cutting? The company’s revenue per employee remains a fraction of other top publishers, and as the company streamlines its focus, it simply doesn’t need much of the staff it has. I don’t know where management ultimately wants to take its cost reduction efforts, but it can — and should — be far more aggressive.


Earningspalooza Stillfront
Source: Stillfront Group

The Highlights(all year-over-year):

  • Net revenue was flat, while organic revenue fell 5%.
  • It’s a complicated profitability picture: Adjusted EBITDA grew 11%, earnings per share turned negative, and free cash flow rose 51%.
  • The adjusted leverage ratio (including earnout payments) ticked up to 1.91x — meaning the business is more debt-heavy.
  • Employee count continued decreasing and is now below 1,500, back to where it was in late 2021.
  • MAUs decreased 4% quarter-over-quarter, while DAUs decreased 6%.

Top Takeaways:

  • The most notable takeaway is what wasn’t said: no mention of M&A. Stillfront appears to have completely shifted from empire expansion mode to nurturing mode. Now, there’s a much higher focus on managing the value created from what it already owns. 
  • As such, growth remains slowed, and there’s a major emphasis on thoughtful cost reductions. User acquisition costs have fallen 9% (as ad spend has become tougher), capitalized development costs have shrunk (as management focuses on the best-performing franchises), and direct-to-consumer bookings lightly rose (increasing gross margin as a result). 
  • On one hand, cutting back growth-oriented costs hurts organic growth, but on the other hand, it ensures a higher return on invested capital.
  • Management expects to return to positive organic growth in the second half of the year as a result of easier comps and improving market conditions.

Top Questions:

  • Will this change of focus result in a better business? I think so. The more a company moves away from pure top-line expansion to return-oriented and cash-flow-driven metrics, the more likely it becomes a superior allocator of capital.
  • What will Stillfront look like in the next three to five years? It’s worth asking because Stillfront has changed so much in the past few years. I suspect it will partially recalibrate, landing between the aggressive acquirer of yesterday and the nurturer of today. The company will likely reinvest in its biggest franchises while aiming to be more selective in acquiring games and teams that can be drivers of organic growth and reinvestment opportunities. That’s also a function of market conditions, and we could see the company broaden its M&A focus beyond mobile and into areas with higher returning customer acquisition strategies.

All in all, it’s a unique time in the market. Not all companies are roaring like they were a couple years ago, but it’s not a broad bear market either. Some companies are crushing it (like Activision and Capcom), while others are reorienting (like Stillfront and Ubisoft), and most all companies are being cost-conscious. Not all platforms, genres, and regions are performing equally, so we see diverse outcomes, but it’s a fun time to see who can make the most of the moment and prepare themselves for even better days ahead. 

Sponsored by CleverTap Gaming: Real-time Personalization in Mobile Games: LTV-boosting Examples

Earningspalooza Mobile Games

Many gaming studios are taking a dynamic approach to tailoring game experiences — from offering unique in-app purchase options to customizing game levels to match individual players’ skills and behaviors. When done well, this personalization can spell the difference between a player churning or turning into a ritualized user. This blog post explores some examples of real-time personalization in mobile games and how it improves player lifetime value (CLV).

#3 Gaming Market Update: July 21st – 28th

By Mario Stefanidis, CFA, Naavik Contributor

Earningspalooza Data
  • For the week ending July 28th, 2023: The average return for gaming companies tracked by Naavik with a market capitalization exceeding $500 million was 0.4%. The S&P 500 returned 1.0% and the Nasdaq-100 returned 2.1%. Full access to the Naavik Gaming Company universe is available here
  • Embracer Group (STO: EMBRACB) stock rose 11.4% after Jefferies began coverage on the company with a “Hold” rating. The investment bank’s note said that negative market sentiment has been priced into the stock, which now offers a favorable risk-reward skew. Embracer has fallen more than -40% since May, when the group lost a “transformative” deal after an unnamed partner pulled out of a multi-year partnership at the last minute. Since then, the company has undergone restructuring efforts aimed at shoring up profitability.
  • Paradox Interactive (STO: PDX) rose 8.8% after reporting FY 2023 Q2 earnings showing revenue growth of 61% and operating profit growth of 37% compared to the same period last year. The main driver for the strategy game publisher was Age of Wonders 4, which was released in May to positive reception. Back catalog titles such as Cities: Skylines, Crusader Kings III, and Stellaris also contributed positively to the company’s earnings.
  • Capcom (TYO: 9697) rose 7.8% after reporting FY 2023 Q1 results. Video game unit sales of 13.5 million units were 15% higher compared to Q1 last year, largely owing to the success of Street Fighter 6. Furthermore, on the earnings call, the company said it would release a currently unannounced game by the end of the current fiscal year (ending March 31st, 2024) that will “sell millions” of units.
  • Stillfront Group (STO: SF) fell -4.0% after the Swedish free-to-play gaming company reported FY 2023 Q2 earnings. Revenue slightly missed expectations, but earnings were stronger than expected. The company trimmed its growth forecast for the year, citing an uncertain outlook.  

Notable Venture Financing Deals

Earningspalooza Valhalla Ventures
Source: Mobidictum
  • Seed-stage VC firm Valhalla Ventures raised $66 million for its debut fund. The proceeds will be used to fund investments in deep tech, such as space technology and energy generation projects, as well as those in “novel and underfunded gaming firms” and especially those focused on social experiences. The firm plans on making new investments through 2025. Thus far in the gaming sector, Valhalla has made two investments, including Incredible Dream, which creates fantasy tabletop gaming series, and 1v1Me, a platform for gamers to compete and bet on their favorite streamers.
    • Founders of Valhalla — Devan Malhotra, Matthew King, and Rohan Pujara — have been investing together since 2020, although this is the trio’s first fund. When all of the proceeds are allocated, gaming will comprise approximately one-third of the fund, with deep tech accounting for the rest. As it relates to gaming, Pujara said Valhalla’s philosophy is to find the team “building something completely new or taking an approach that everyone is ignoring.” He also suggests cloud gaming will cause significant disruption in the sector as its capabilities approach that of game consoles. 
  • Closing Theory, a new mobile game development studio, has raised $2.3 million in seed funding in a round led by a16z. Other investors include Spencer Rascoff, co-founder and former CEO of Zillow, The Altman Brothers at Douglas Elliman Real Estate, and various other real estate entrepreneurs. Closing Theory aims to create games that are more connected to the real world. Its first two titles HOUSE RUSH! and NEIGHBORHOOD RUSH! are intended for those who browse real estate sites like Zillow without necessarily planning to buy a house. 
  • U.K.-based GameStake Technologies, a company focused on creating gaming apps for rewarded play, has raised £630,000 in seed funding. GameStake has also secured a growth facility of £2.5 million from games industry financing company Triple Dragon. According to its website, Triple Dragon’s loans are secured “against app store, platform or ad network receivables.” Rewarded play is a concept in the gaming industry where players receive real-world, non-monetary rewards for engaging with a game. These rewards can range from discounts on shopping to special access to features within the game itself. The firm seeks to broaden its scope through the introduction of its new initiative, "GameStake for Business,” which aims to collaborate with other businesses and aid in their expansion through incorporation into its platform. 

Notable Strategic Investments

Earningspalooza Techland
Source: Shacknews
  • Chinese conglomerate Tencent is acquiring a majority stake in yet another game studio, this time Techland. The terms of the deal were undisclosed, but the Polish video game developer was unofficially valued at PLN 10.6 billion last July, or $2.6 billion using today’s exchange rate. Since the valuation, however, CD Projekt Red, which competes with Techland for the title of largest video game company in Poland, has surged more than 60%. That means Techland’s purchase price could have been significantly higher.
    • The studio is known for its zombie survival games, such as the Dead Island and Dying Light series. CEO Paweł Marchewka said the new resources would turn “Dying Light into the ultimate zombie game experience for players worldwide.” He also expressed optimism in an upcoming fantasy open world action-RPG, the company’s first new IP in a decade. The studio will also retain ownership of its IP and creative freedom over its direction. 
  • Capcom acquired Swordcanes for an undisclosed amount, which it disclosed concurrently with its FY 2023 Q1 earnings report. Swordcanes is a 3D and 2D computer graphics studio that most recently provided graphical support to Street Fighter 6. This year, it also participated in the development of Square Enix’s Final Fantasy XVI and Bethesda’s Hi-Fi Rush. In Capcom’s statement, the company wrote that it may acquire other technical studios to bring more game development in-house. Capcom does not anticipate any impact on its business results for the current fiscal year resulting from the purchase. 

Notable Studio Updates & Partnerships 

Earningspalooza GameStop
Source: GameStop
  • GameStop CFO Diana Saadeh-Jajeh announced her resignation from the video game retailer, which will take effect on August 11th. She held the position for just over a year, after the company terminated previous CFO Michael Rucupero and laid off staff across the entire business in an effort to turn around performance. Recupero was part of an influx of executives from Amazon hired to help transition GameStop into a technology-focused business. With Saadeh-Jajeh's departure, the company's current VP and corporate global controller, Daniel Moore, will assume the roles of principal accounting officer and interim principal financial officer. Last month, the company fired CEO Matt Furlong, elevating chairman and activist Ryan Cohen to the role.
  • Samantha Ryan, a veteran executive at EA, has decided to step down, leading to a management reshuffle at the company. The change follows June’s shakeup in which EA replaced its CFO and divided studio management duties between COO Laura Miele, now heading EA Entertainment, and Cam Weber, who was promoted to president of EA Sports. Rachel Franklin, formerly SVP of Positive Play, will assume some of Ryan's responsibilities as the group executive overseeing both Maxis and Full Circle. Franklin will serve as SVP and group general manager of Lifestyle Entertainment, the new rollup for both of these studios.
    • The Positive Play group, which had about 20 employees, will be dissolved as part of the reshuffle and its employees reassigned to different studios. EA expressed its intention to combine Maxis and Full Circle, which develop The Sims and Skate respectively, into one organization. According to EA, these franchises share many things in common, such as social community aspects and similar technology tools used to build the games.
  • Adam Kiciński, CEO of CD Projekt, announced in a blog post that CD Projekt Red would undergo a strategic restructuring. The development arm of the Polish video game company is set to lay off 100 employees, representing 9% of its workforce. Kiciński stated that the move came after a reevaluation of the team structures within the company, which he concluded were overstaffed. The layoffs will not be immediate, with some employees scheduled to depart in March 2024. The company previously laid off the remaining team of Gwent last month, following the conclusion of production for the Witcher card game spin-off. Kiciński also noted that the company is undergoing significant transformations with the aim of delivering quality games on schedule and eliminating the practice of “crunch,” something for which CD Projekt received criticism during the development of Cyberpunk 2077.

You can view our entire job board — all of the open roles, as well as the ability to post new roles — below. We've made the job board free for a limited period, so as to help the industry during this period of layoffs. Every job post garners ~50K impressions over the 45-day time period.

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