In Plato's allegory of the Cave, he describes a group of people living in a cave, chained in a way that they can only see the shadows of objects passing in front of the light outside the cave. The people see the shadows and give them names. The shadows constitute the prisoners' reality, but they do not represent reality objectively. One can also view the shadows as the fragments of reality that we normally perceive through our senses. The real objects, however, the prisoners (i.e., us) can only perceive through our intellect.

On March 28th this year, three days before the end of the quarter and fiscal year 2022/23, Embracer announced that it is likely not going to conclude negotiations on several partner and licensing agreements, which it sees as transformative for the company, until the first quarter of 2023/24. These agreements have been central in the discussion around the company, especially as they have been mentioned as crucial for the company to achieve its forecast for an adjusted operating profit of 8-10 billion for 2022/23.

The delay reminded us of Plato's cave, as the real effect of a quarter's postponement on the company's value is likely to be marginal. to be fair, an apple today is worth more than an apple tomorrow. However, in a theoretical net present value calculation, a quarter's delay, even of a major deal, should hardly mean more than a fraction of the net present value. In the shadow world, what we normally call reality, the stock price was down 13 percent. The postponed deal alone does not explain the movement; we should also consider an article in the Financial Times the same day in our considerations.

Even though we prefer to act in the real world, we have the utmost respect for the shadow world. Keynes' words echo: "markets can remain irrational longer than you can remain solvent." We can also turn the argument around and argue that what Plato calls the real world is the map and that the shadow world is reality. Which one is true - the map or reality? Even if we don't go that far, there is no reason to shout from an ivory tower about shadow worlds and the market being wrong.

A good reason why the shadow world's image of Embracer dominates is that the latest announcement does not come alone but is yet another black ball in the bag for the company. Everyone knows it takes several white balls to outweigh a black ones. The black ones are like bowling balls while the white ones are like ping-pong balls. For over two years, Embracer's stock price has been plagued by lower growth in the industry as a whole, a perception of the company's acquisitive growth shifting from enthusiasm to skepticism, and a world of higher return requirements that rewards proven cash flows here and now.

Trust is the esoteric factor that transforms and sometimes distorts the forms of reality into the images of the shadow world. In hindsight, we can dryly state that the lamp of trust shone brightly on Embracer from its IPO in 2016 through a number of transformative, value-enhancing acquisitions until pandemic-driven (over)demand in 2020. Trust has gradually eroded from spring 2021 until now, and thus the shadow world's image of the company has completely changed for the worse.

Plato's allegory probably aims to show how difficult it is to perceive the world as it is and that it requires a conscious effort of our logos, our rational side. What we know, the allegory tells us nothing specific about trust versus mistrust. In the stock market, it is also rare for the forms of the shadow world and reality to coincide - for stocks to be objectively and rationally valued correctly. The market is just as occupied with mythos as logos.

How do we view the future of Embracer, in reality and in the shadow world? One thought is that the expected agreement on licenses and partnerships affects the outlook for both fiscal years 22/23 and 23/24 to the same extent. The area under the curve should remain the same. The company has 31 AAA games in development and a large investment hump to be realized in attractive entertainment along with corresponding revenues. The first game in this lineup, Saints Row, did not meet players', the company's, or the market's expectations. Games 2-4 in the order, Dead Island, Remnant, and Space Marines, look much better in both critics' and our eyes. The risk in the real world lies here and now on the upside. Whether it is enough to strengthen trust and turn even the forms of the shadow world in the near future remains to be seen.