Paradox Interactive, the Swedish grand strategy game developer, recently presented its Q1 2023 results. While the top line showed modest growth, the bottom line was underwhelming, attributed to "normal release volatility" by CEO, Fred Wester. However, a closer look at the transcript, particularly CFO Alex Bricca's detailed breakdown of the cost of goods sold (COGS), reveals a potentially intriguing narrative that extends beyond simple release cycles. The "VR Branding Event" surrounding the Stellaris VR release, while seemingly innocuous, might actually signal a more strategic maneuver in Paradox's long game: a renewed focus on mobile gaming.

Bricca explicitly mentions that VR is "not, by any way, our core platform". This statement, coupled with Wester's own characterization of the Stellaris VR release as "more as a branding event," casts doubt on the project's financial significance. While licensing royalties are touted as a potential upside, the deliberate downplaying of revenue expectations suggests a different primary objective.

The intriguing piece of the puzzle lies in Bricca's reference to the high amortization costs associated with Surviving the Abyss, a game released under Paradox Arc, the company's publishing brand. This title, unlike other Arc releases, was capitalized "from the start" and used an external studio, a strategy reminiscent of Paradox's previous approach to mobile game development.

The connection between these seemingly disparate projects becomes clearer when considering Paradox's recent acquisition history. The company acquired Playrion Game Studio, a mobile game developer, in Q3 2020. Playrion's flagship title, Airlines Manager, falls squarely within Paradox's preferred "management segment." This acquisition, combined with Bricca's statement that mobile is an area where they are "always looking at expanding our skill set", indicates a continued interest in the platform.

Could the "VR Branding Event" be a clever smokescreen, a way to mask increased mobile development spending under the guise of exploring new platforms? This hypothesis is further supported by the significant portion of amortization costs (roughly 50%) attributed to new games in Q1 2023. While Victoria 3 and the Stellaris VR project account for some of this, the inclusion of Surviving the Abyss, a title developed under a mobile-esque strategy, raises eyebrows.

Examining the Numbers

Let's examine the numbers. The total amortization cost for Q1 2023 was SEK 110 million, meaning approximately SEK 55 million was related to new games. We can assume a significant chunk of this, potentially even a majority, was allocated to Surviving the Abyss, given its prolonged development cycle and high upfront capitalization.

This raises the following questions:

What is the true development cost of Surviving the Abyss, and how does it compare to Paradox's typical mobile game investments?How much of the "non-capitalized development costs" (SEK 83 million in Q1 2023) is dedicated to mobile projects, hidden amongst the "risky" games being developed by Paradox's "new games team"?Is Paradox quietly building a robust mobile gaming portfolio, leveraging the lessons learned from the Stellaris: Galaxy Command experience?

A Strategic Diversion?

The "VR Branding Event" might be a red herring, a strategic diversion to deflect attention from a more significant shift in Paradox's focus. The company, known for its meticulous long-term strategies in the grand strategy genre, might be laying the groundwork for a mobile gaming resurgence.

While the current financial reports offer only glimpses of this potential shift, the strategic breadcrumbs, carefully sprinkled throughout the Q1 2023 transcript, paint a picture of a company preparing for a multi-pronged expansion. Only time will tell if Paradox's "Trojan Horse" strategy will conquer the mobile gaming landscape.

Cost Breakdown Analysis

To further explore this hypothesis, let's analyze the cost breakdown provided in the Q1 2023 transcript:

Amortization Cost Trend

The following graph visualizes the trend of Paradox's amortization costs over the past few quarters:

"Fun Fact: Paradox Interactive was initially founded as Target Games in 1995. They changed their name to Paradox Interactive in 1999, reflecting their shift towards developing and publishing their own games."