"They should all be destroyed!": Frontier Developments

Wednesday, Sep 05 2018 by

Hi everyone,

The above line uttered, of course, by the late, great Bob Peck playing Robert Muldoon in the original Jurassic Park, referring of course to the Raptors!

What are currently being 'destroyed', are analysts previous forecasts....specifically EPS (63% beat); Adj net income (71% beat). I say that, with a wry smile, as of course a one off £0.7M tax credit helped the former, but I was also pleasantly surprised to see a 9% reduction in the cost of R&D & cash on the balance sheet up to £24.1M.

What will peak investors interests, are the comments from Mr Braben. Specifically, we now know the next franchise will be their own IP. This is very interesting, and the rumour mill will be swirling as to what this will be. We are told: 

we'll be making a number of exciting announcements about each franchise in due course

Frontier Expo was held in October last year, and perhaps, could come late this year (although not announced) this would give an opportunity for the new franchise to be announced.

We're also guided as to FY19:

Although it is still early in terms of both Frontier's financial year and the life-cycle of Jurassic World Evolution, the Board is comfortable with the current range of analyst revenue projections of £75 million to £88 million for FY19 (the year ending 31 May 2019)

What I find most interesting is a comment from Mr Braben around the model they are choosing to take. I believe Frontier are right in their assertions, and this is already starting to happen in the gaming world. He called it 'games as a service'.

Our chosen model - supporting our games and their communities with regular updates, essentially 'games as a service' - is working very well, producing three out of three successful franchises so far, but we will continue to monitor and consider different options as the industry continues to evolve.

This is starting to happen everywhere (For example: Battlefield V will have maps that 'evolve' similar to Fortnite), and not only have Frontier Developments (LON:FDEV) recognised this, but are making it a key strategic priority.

Something that Frontier have shown they are good at is creating persistent, living worlds. They don't merely create a static game…

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Frontier Developments plc is engaged in developing non-game applications and video games for the entertainment sector. The Company's segments include self-published and external publishers. The self-published segment is engaged in sales of the game and digital in-game. The Company has completed work for external publishers, including Screamride and Tales from Deep Space. Its games are developed using its COBRA cross-platform technology, allowing code and resources developed on personal computer (PC) to be compiled and run on XBox360, PS3, iPhone operating system (iOS) and Nintendo WiiU. The Company offers Elite Dangerous game on PC, Mac and Xbox One. The Company is engaged in developing games of the strategy/simulation genre, including RollerCoaster Tycoon 3 for PC and Zoo Tycoon for Xbox. The Company also offers Planet Coaster, its self-published franchise. more »

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12 Posts on this Thread show/hide all

momentofclarity 5th Sep '18 1 of 12

Title: Frontier Developments PLC
Summary: Liberum will host a Prelims Roadshow with David Braben (CEO) and Alex Bevis (CFO) of Frontier Developments PLC on 5th - 12th September in London & Edinburgh.
David Braben, CEO
Alex Bevis, CFO

Timing is good for this roadshow, hopefully inst investors will see the l/t vale and growth prospects, could potentially help the share price from here

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InvestedGeordie 5th Sep '18 2 of 12

In reply to post #396369

Yes - this is available on their website, now: https://www.frontier.co.uk/investors

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Trigger14 5th Sep '18 3 of 12

Any idea why the share price reaction has been so negative?

Blog: Quality Share Surfer
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roddy10 5th Sep '18 4 of 12

I read the statement today and thought that there was very strong signalling of good news. The market moved on the basis of relatively few sellers.

1. Elite Dangerous is into its fifth year. But read the discussion on the third 'season' carefully - 'Each Beyond update is free for all players' - thus the numbers for 2018 - 2019 will effectively gain from sales of Elite to new players but not from 'upgrades' to existing players. If we extrapolate to 2019-2020 - and assuming that the next season is charged - that adds significantly to the numbers and I think analysts have ignored this.

Also there is a slightly isolated paragraph that looks to me as highly significant:
'We continue to invest significant effort into Elite Dangerous which we expect to yield some exciting future developments - more to come!'

Given the number of eyes that the statement would have gone through before reaching the market that looks a non-random sentence. Remember that the first Elite Dangerous game was funded for a few million; and that the words 'significant effort' mean a lot more for a company of the size Frontier is today.

2. China - my understanding is that Elite is not in China (I stand to be corrected on this) - so there is a potential upside there.

3. Planet Coaster: - again reading carefully the statement says that there were four major free updates upto November 2017. This is a company planning for the long term - and not worrying about short-termism.

4. Universal relationship - the market focusses on Jurassic World - but in the discussion on PDLCs (paid downloadable content) under Planet Coaster the company mentions that they used IP from Universal (Back to the Future, The Munsters and Knight Rider). Reviewing this makes me think if there is another film tie-in for Frontier it is likely to be with a Universal film.

5. Planned Announcements
The company said it would make 'announcements about future franchises at the optimum time for the success of that particular franchise. This may be some time after the start of a particular project and not necessarily at the time of the signature of an agreement with a development or IP partner.'

The company had said wording to similar effect at a previous announcement - hence I had not expected any particular franchise announcement today. I am surprised that other people are surprised there was no such announcement.

6. Film tie-in
There has been some chat elsewhere about expectations that the company would announce another film tie-in today. For the reasons above I had not expected any such announcement. However some people have taken the announcement that franchise 4 is based on own IP as a negative. I am thinking instead it means that the numbers in analyst forecasts are wrong and have greater upside - let me explain:
Year to
May 2018 --- sales of Elite Dangerous (ED) and Planet Coaster (PC) ---- circa £34M

May 2019 ---- ED / PC plus JWE (Jurassic World Evolution) ---- circa £80M

May 2020 ---- ED / PC / JWE + franchise 4 - own IP - circa £71M

May 2021 --- ED / PC / JWE / franchise 4 + franchise 5 ---- circa £90M

We are currently in the year to May 2019 but the numbers are missing a couple of points:

a. the company said it is also looking at external partnerships. So if we get even one external partnership that might add a few £m to the above numbers (and remember that will be high margin).

b. as discussed above the numbers for ED and PC have been 'suppressed' due to free upgrades.

c. The comments on Elite suggest that there may be a big impact from the 'next generation'

d. there is nothing in the numbers for any acquisitions / deals

e. The increase in numbers from May 2018 to May 2019 is circa £45M - ie JWE is big. If franchise 5 is a film then why should it add only £19M?

f. Remember the installed base of consoles / PCs is increasing each year so that should lead to some growth (the company is still getting royalties from games such as Roller Coaster Tycoon 3 even though it is years since it was launched).

7. Marketing is about to be stepped up:
Note that the company has hired Stewart Stanbury from Google where he specialised in digital marketing / brand / strategy for games companies (the press release mentions EA / Ubisoft and Activision). I think this is an interesting hire. Given the companies he covered why would he choose Frontier over eg EA or Ubisoft etc?? If marketing is ramped up will analysts have to up numbers?

8. Ambition

The statement mentions that the industry has 'a number of companies supporting $1 billion + valuation' - again I cannot believe that that is a random throwaway line. This company is clearly on a mission.

9. Twitch
There is a lot of commentary about number of live streams on Twitch but it seems to me that this misses a crucial aspect. Certain games and user bases are more likely to stream on twitch than others. Eg planet coaster players I think are more likely to be younger and female and less hard core gamers so less likely to be on Twitch. I think the key point with the games is that Frontier is developing long shelf life games which bring loyal user communities that should generate significant long term value.

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roddy10 5th Sep '18 5 of 12

Wondering if anyone has access to IMDB Pro - according to Wikipedia Jurassic World: Fallen Kingdom has done $245.5M in China. Other websites also seem to suggest it has done exceptionally well in China.

In view of this I am thinking how much will JWE generate in China over its lifetime.

Also I just checked and my local cinema in the UK is also still showing the film. Surely, despite investor snobbiness, this is all rather bullish for JWE. And presumably after the cinema there are Christmas (/Chinese New Year) showings of the Jurassic Park / World films which generate more game sales?

Also the Wikipedia page for Jurassic World: Fallen Kingdom mentions the next Jurassic World (3) film will be released in 2021....

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johnsmith68 6th Sep '18 6 of 12

In reply to post #396579

Hi roddy10. Thanks for your analysis. I've read the investor presentation and I'm reasonably bullish also but I'm a little confused by the phasing of revenue from the forthcoming franchises.

You said at e.) The increase in numbers from May 2018 to May 2019 is circa £45M - ie JWE is big. If franchise 5 is a film then why should it add only £19M?

On the presentation, franchises 4,5 and 6 are all shown in development for FY2019 so presumably they will add nothing to FY2019 results and then only #4 will add anything to FY2020?

Have I misunderstood something here?

My other concern and I suppose the reason for the negative sentiment yesterday is the sharp decline in operating margin. With the increased development spending and marketing required for the new franchises, it may be years before the operating profit starts to recover.

I see this as a fantastic long term investment but I'm wondering if the short to medium term prospects for the share price are as bright.

Would love to hear views and counter arguments.

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Howard Adams 7th Dec '18 7 of 12


I thought this a useful place to post this link to the Frontier Developments (LON:FDEV) presentation done a Mello Chiswick.

Videoed by the excellent Tamzin and piworld (thank you Tamzin for your excellent videos), I thought it useful in case others interested in Frontier Developments (LON:FDEV) and this sector had not seen the vid.

I think the presentation is a good explanation, not only of Frontier Developments (LON:FDEV) , but also of part of the gaming sector.

I don't hold Frontier Developments (LON:FDEV), but have watched it for a while. I am becoming increasingly interested in building a portfolio of UK, European and US based companies in the sector. I am already a holder of Games Workshop (LON:GAW) and Keywords Studios (LON:KWS) other players in this space.


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InvestedGeordie 7th Dec '18 8 of 12

Hi Howard,

I increased my position this morning by 12%. It should be noted I have a horrendous track record of adding to Frontier Developments (LON:FDEV) and it falling, so this is probably a contrarian indicator! As many have pointed out the FY2020 forecasts weigh heavily on the mind of the market but I see nothing but positivity, of late. 

A couple of points, specifically:

- Platform War

There's currently a platform war going on, and I believe this will intensify. For many years Steam had a tight grip on the digital 'shop front'. Steam, as a platform is well loved by PC gamers. It's a one stop shop for all updates, content delivery and online gaming. However, as they had a monopoly,  for Publishers & Devs they had to put up and shut up while Steam took exorbitant fees. If they were clever, they could well have 'done an Amazon' and reduced their margins to such a degree a new player entering the market would simply not be interested. They decided not to do this, and now they have competition from Epic, Discord & Tencent! In answer, Steam have significantly changed their charging structure: Especially good news for Frontier.


- Franchise Strategy

Frontier Developments (LON:FDEV) have made no bones about supporting a game over a significant period. They are not looking for a massive amount of units immediately, although, in the case of Jurassic World: Evolution, they did reach 1M units in 5 weeks. Discounting / price promotions during key periods, clever marketing spend combined with free and paid for content, keeps people interested and engaged. They also are interested in a good mix of their own IP vs 3rd party IP. We know the 4th franchise will be their own IP. Speculation still rages on regarding the 5th & 6th franchises. Some mention the Bond film, some mention Game of Thrones (both controlled by Universal, as Jurassic World: Evolution was). Whatever they turn out to be, I like that they recognise that creativity cannot be put under pressure. 

Ultimately I believe my interests to be well aligned with the directors, and that they will allocate capital for the long term.



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Howard Adams 7th Dec '18 9 of 12

In reply to post #425688


Many thanks for your insights, very useful to me as a complete non-gaming new comer to this space (except for long(ish) term holding in Games Workshop (LON:GAW) ).

I noted in the Frontier Developments (LON:FDEV) presentation they mentioned Codemasters Group (LON:CDM) another UK gaming company and was delighted to find Tamzin and piworld are already on the case with a video of their H1 results in November.

In case you (or others) have not seen it here is the link, and very interesting it is too. Particularly with regard to were growth could come from not just for Codemasters Group (LON:CDM) but the gaming sector in general (5G for example and eSports of course).


EDIT: Ooopps I do not hold Codemasters Group (LON:CDM) at present.

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InvestedGeordie 15th Jan 10 of 12

I am reliably informed they will release an update to the market this morning, and I'll update this thread with my thoughts once I have read & consumed the update and any subsequent broker note released on Research Tree

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Howard Adams 15th Jan 11 of 12

In reply to post #425708


Building on my post #9 7th Dec. (above).

There is news in all three of the stocks I mentioned Frontier Developments (LON:FDEV) Games Workshop (LON:GAW) and Codemasters Group (LON:CDM). If anyone is interested here are some highlights and links if you want to dig deeper. (I have very small holdings in each now, but hope to build one or more up if things go ok).

I have never played these sorts of games, but after watching two Piworld vids my interest in the sector was pricked - who knows, but a nice bit of diversity in my portfolio. https://www.piworld.co.uk/

Frontier Developments (LON:FDEV) was up over 9% at open, but now at -1.52% (at time of typing) - I hold small amount.

Extract from RNS this morning .....

For the six months to 30 November 2018, the Board expects to report record company financial results based on the successful launch of Jurassic World Evolution in June 2018 and the ongoing performance of Elite Dangerous and Planet Coaster, as Frontier continues its strategy of building long term franchises delivering multi-year revenues. Frontier expects to report revenue of approximately £64 million for the period compared to £19 million recorded in the interim results last year.

Based on trading performance in the first six months of the financial year, combined with sales over the Christmas holiday period, the Board remain comfortable with the analyst revenue projections of £75 million to £88 million for FY19 (the year ending 31 May 2019) and anticipate that revenue should exceed the mid-point of this range.

The RNS says Frontier Developments (LON:FDEV) will report interims 6th Feb. Full RNS here ...

Games Workshop (LON:GAW) also announced half year figures. These seemed to me to be quite muted. At time of typing price is -0.58%. (I hold small amount).

Extracting the headlines ...

December trading continued in line with the sales performance in the first half.

We are also announcing that the Board has today declared a dividend of 25 pence per share, in line with the Company's policy of distributing truly surplus cash."

RNS here ...

Interestingly Codemasters Group (LON:CDM) (also mentioned in my 7th Dec post) has, since 7th Jan risen from 161.5p to 186.00 (at time of typing) - some 15% (if I got my sums right).

This price rise seems to have been catalysed by this RNS - 'Codemasters Grp Hldg - Codemasters and NetEase to Develop New Mobile Game'

Adding to this, this research round up presented this ' * Codemasters Group Holdings Plc CDM.L : Jefferies raises target price to 263p from 231p'

(Since my 7th Dec posting I have bought a small holding of £CDM).


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InvestedGeordie 21st Jan 12 of 12

Evening all,

My sincere apologies. I had aimed to do a small write up when news was released, but, as ever, life got in the way (or should I say "Life found a way?"). I work full time and have 2 young children. Thank you for your patience - I better make it reasonably worthwhile then. 

Let us look at the what we're told.

Originally Frontier Developments (LON:FDEV) directors gave a range of £75M - £88M revenue. They now tell us that they "anticipate that revenue should exceed the mid-point of this range" i.e. £81.5M. I believe this is coy, and I'll explain why. They have told us "Frontier expects to report revenue of approximately £64 million for the period compared to £19 million recorded in the interim results last year". If we use £81.5M as the midpoint, that means they have achieved 78% of their yearly revenue in 6 months! Excellent news! But wait....what we like to see are earnings beats. What could possibly help them exceed expectations? Remember, the period they are reporting for is the first six months up until 30th November 2018. This misses the key Christmas holiday sales period! 

A few points, here:

  • JW:E was dramatically discounted by 75% and was on the front page of steam sales consistently throughout the sale period. I initially was worried the discount was too steep, however, friends will see what other friends are playing, and want to play it. I think this sale period has spread the game dramatically, and was a sensible move. The game is now back to £44.95 on Steam. 
  • "majority of unit sales on all three platforms (PC, PlayStation 4 and Xbox One) are from digital sales" margins are higher on digital sales, and we may well see games sold through steam show a higher margin than previously anticipated based on Steam reducing fees for higher revenue generating titles. I expect both JW:E & Elite Dangerous to be in this bracket in FY20.
  • Industry backdrop, as highlighted by Liberium in their note, is very favorable. Gaming platforms are  reducing their margins due to increased competition. 
  • By 2022, 8 gaming franchises will be earning revenue due to increased pace of development. 
  • Liberium retained the £18 target. This really is important as I do rate their analysts covering Frontier Developments (LON:FDEV) - Andrew Bryant & Alexandre Schmidt. Their note posted 21st November 2018 was exceptionally well done. They will be preparing another like this for February numbers to be released on 6th February, and notably, hosting analysts for a visit. Finncap, whilst behind the curve, have said "In response, we lift our revenue forecast 8% from £75.3m to £81.5m. With operational gearing from a fixed cost base, earnings should rise by 13%". Frontier is heavily operationally geared. This is the primary reason why the company will always be prudent with its earnings forecasts. 

In summary, I trust management implicitly, here. They are all heavily aligned to shareholders interests. New holders have an opportunity to buy below prices paid by both David Gammon chairman (recent £50k buy) & James Mitchell Tencent NED (recent significant buying totaling £1M+ now worth circa £775k). The CEO, David Braben, holds 36.5% of the company. 



NB - I hold a long position (shares & spreadbets) in Frontier Developments (LON:FDEV)

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