Swedish games developer Embracer reported a 50% drop in first quarter operating profit on Thursday after the owner of the Tomb Raider franchise released fewer games.

The company said it still expects to release games with a value of 3.9 billion Swedish crowns ($372.70 million) for the financial year, but its shares were down 10% by 0700 GMT as it also reported a much bigger than expected slide in first quarter sales in its Entertainment & Services segment.

Embracer, like other game developers, benefited from growing demand for video games during COVID-related lockdowns, but has since been hit by development delays, falling demand and poor reception for some of its new titles.

Entertainment & Services segment sales dropped 54% year-on-year in April-June to 848 million crowns, it said, a bigger-than expected 37% drop from the company's consensus.

After years of studio acquisitions to become a top global and European games publisher, the company took on $1.5 billion in debt.

However, it suffered a major setback last year after a $2 billion partnership deal with an undisclosed company fell through, which led it to announce a major restructuring plan in June last year.

Following the failed partnership, Embracer has divested some studios to reach its debt reduction target and is charting a new course by splitting into three publicly traded entities by 2025, redefining its future in the gaming industry.

Embracer's planned three-way split would be carried out through the listings of Asmodee, which recently secured a $976 million loan to help repay the company's debt, Middle-earth Enterprises & Friends and Coffee Stain & Friends.

The company said its adjusted operating profit fell 50% to 828 million Swedish crowns in its first quarter, just below analysts' forecast of 839 million crowns in a company-provided consensus.

"Out of the mix, PC and console performed well, but the volatile Entertainment and Services segment dragged results," Jefferies said in a note.

Embracer's shares have lost around 80% of their value from their 2021 peak.

  - Reuters