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Sega Sammy's entertainment profits slide by 52.5% Y/Y despite Rovio sales boost

Angry Birds developer had its worst quarter for game sales in three years following Sega acquisition
Sega Sammy's entertainment profits slide by 52.5% Y/Y despite Rovio sales boost
  • Company blames rising development costs, mature European and US markets, and worsening macroeconomic environment for games division struggles
  • Sega aims to continue reviewing portfolio lineup and is considering structural reform across Europe
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Operating income in Sega Sammy’s Entertainment division fell by 52.5% year-over-year to ¥18.8 billion ($125.9 million) during the nine months ending December 31st, 2023.

The company’s latest financials show that net sales for the entertainment group hit ¥219.3bn ($1.47bn) during the period, which represented an increase of 4.2% Y/Y. An rise in sales can partly be attributed to Sega’s acquisition of Rovio for €706 milion ($775m), which closed in August 2023.

Overall net revenue for the company grew by 27.7% Y/Y to ¥349.9bn ($2.34bn) during the period. Meanwhile, operating income was up 42.4% Y/Y to ¥54.4bn ($364.4m)

Restructuring continues

Sega highlighted struggles for its games division, which included rising development costs and the US and European markets maturing. It the said the latter was sparked by the “worsening economic environment caused by inflation and other factors”. Sega noted the challenges required an “urgent need to respond”.

Sega incurred a ¥11.7bn ($78.4m) "extraordinary loss" during the period, which included costs for business restructuring and a review of its portfolio across all of its European studios. The company recently laid off staff at UK studio Creative Assembly, cancelling shooter Hyenas, and also cut 61 employees at Sega of America.

The firm noted in its presentation that it would continue to review its medium term games lineup and will “consider structural reform measures of the CS business in the European region”. This includes a review of its development and sales structure and management system.

Sega has revised down its forecasts for the full year, expecting overall net sales of ¥463bn ($3.1bn) and operating income of ¥51bn ($341.3m). For its entertainment division, it anticipates net sales of ¥313.5bn ($2.1bn) for the year and an operating income of ¥23bn ($153.9m).

Rovio revenue

As part of its presentation, Sega highlighted sales of Rovio’s portfolio of games during the past three years. The developer recorded €66.4 million ($71.5m) in revenue during Q4 2023, its lowest since Q1 2021 when it generated €64.5m ($69.5m)

Angry Birds 2 remains the company’s flagship title, generating €23 million ($24.8m) in Q4 2023, while Angry Birds Dream Blast generated €21.5 million ($23.2m). Only Rovio’s hypercasual portfolio and “custom contracts” saw year-over-year growth.