What happened
Shares of video game company Embracer Group (THQQ.F 10.29%), formerly known as THQ Nordic, have fallen dramatically this week. At 2:30 p.m. ET on Thursday, data from S&P Global Market Intelligence shows that the stock is down 13% since Friday's closing bell. A highly anticipated game title hit store shelves on Wednesday, but the release faced a tidal wave of critical reviews when reviewers' nondisclosure agreements expired on Monday morning.
So what
In last week's earnings report, Embracer highlighted the reboot of the best-selling Saints Row crime-drama franchise as a driver of growth in the next quarter. CEO Lars Wingefors highlighted strong preorders and fan buzz for this title, noting that the prereleased avatar editor for this game had been installed more than 1.3 million times.
So expectations were high, but the game didn't impress early reviewers. Critics pointed out graphical glitches, a difficult character control system, and uninspired plot lines as reasons to avoid Saints Row IV. Embracer's shares fell 12.5% that day.
OTC: THQQ.F
Key Data Points
Now what
The disgruntled reviews will not help the Saints Row reboot achieve Embracer's lofty goals, but the stock market seems to have overreacted a bit.
A handful of reviewers still saw this title as a decent installment in a popular series. The game brings a sense of humor often missing from similar titles, and the company should expect millions of near-guaranteed sales to fans of earlier games in this series.
For example, Saints Row IV shifted more than a million copies in its first week, way back in 2013. Saints Row 3 reached 5.5 million consoles and gaming PCs in 2011 and 2012. All things considered, Embracer may not have the blockbuster title it wanted, but there should be a reasonable market for this flawed but interesting title.
Furthermore, one title won't make or break Embracer's fortunes on its own. The latest earnings report also showed that Embracer's stable of 22 game development studios is working on more than 220 titles right now. And the company continues to buy out game studios as we speak. That earnings report also disclosed five studio buyouts, including the Middle-earth Enterprises company that owns the rights to movies, games, merchandise, and theme park rides related to J.R.R. Tolkien's Lord of the Rings world. Yes, that deal means that Embracer has a financial interest in the upcoming Lord of the Rings series from Amazon. You can't ask for a better content partner than Amazon Prime.
The robust first-quarter report and ambitious buying spree of last week inspired me to pick up a few shares of Embracer. I can't wait to see this company continue to carve out a space of its own in the video game market, even if the company stumbles a few times along the way. If anything, the stock looks more inviting at today's lower prices.
