London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East and have access to Premium Chat. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Video game group Frontier Developments PLC (LON:FDEV) levelled up as the launch of its highly anticipated new game, Planet Zoo, sent the shares 13% higher to 1,234p.
Average review score of 82/100 so far on Metacritic:
Lowest score so far is PCGamger with 75%, and only downside so far is that it is quite difficult and can take a while to get to grips with the game mechanics. Having said that, considering the complains regarding the shallow management of JWE and PC, this is actually a good thing in my eyes. I'd rather it be difficult than shallow.
I bought more today around £11. The trading has been consolidating around this level for a while and was waiting for a break out above it. This seems a strong move, supported by a positive release. Will be looking for it to continue on north now.
Also, Planet Zoo is No.1 and No.2 in both UK and World Steam top sellers list.
Blizzard back peddling... I've already deleted Hearthstone due to this and will think twice about buying from them in the future. Good to see them bowing to international pressure and not being tied solely to China's political desires though.
I doubt it will have any impact here, just because of the kinds of games Fdev make. They aren't competitive like Blizzards, so are unlikely to to incur any uncomfortable public clash of interests. It will be worthwhile keeping an eye on though.
Interesting. Will have to wait and see if has any impact. Doubt it though tbh.
May have more on League of Legends than FDEV games. Only because they also have televised championships like Hearthstone. Especially when you have the likes of the Hong Kong Attitude team that competetes in the League of Legends Master Series . Politics in gaming. Go figure. Can't wait for CoD: The Brexit campaign. :)
Was a big fan of some of the old blizzard games. Especially Diablo.
Something for investors to think about, could affect Frontier given Tencent's stake.
Blizzard's recent issues regarding Hearthstone and banning a pro-HK competitive player have caused a huge stir in the gaming community. A stalwart of the Blizzard golden-era has summarized it quite well https://imgur.com/gallery/kDpSV78 but essentially the community is viewing any company that has links to, or alters games for, Bejing, in a very negative light (and rightly so imho).
Tencent is obviously the one most people are concerned about. It is possible that gamers could start boycotting developers.
£370K times 3 and a £658K. That's nearly £1.8m in 4 trades.
With just over a month till the release of the new franchise (Nov 5th) and pre sales on steam in the top 10, I thought it might be hedging higher not lower. Guess thats the joys of being an algo driven stock. Hey ho, no rush.
Had some rave reviews at the shows including best sim at gamescom though.
Proactive did a piece on it on 27th August.
"Berenberg’s current forecasts are for Planet Zoo to contribute £25mln of revenue in the current financial year, equivalent to circa 37% of the revenue that Jurassic World Evolution delivered.
With a “strong possibility” that Planet Zoo will outperform current forecasts, the analysts said, with revenue of £35m-£50mln in the current year would lift group revenue to around £83mln-98mln, resulting in underlying earnings (EBIT) of roughly £17.1mln-25.5mln."
Looks good for next year.
Don't be rude about Mr Breadbin, you might end up as toast.
Agree with you Endion.
Yes, it is frustration see the share price retrace upon good results but most shares actually do do this. When you look at the recent rise just before the results, the RSI and STOCH are over bought, then I suppose it was always going to happen. What is good though is the share price has bounced off support so hopefully this is just the next step up.
Talking of PR, I dont suppose you watched the FY presentation yesterday? You cant blame Braben for market reactions. All he can do is develop the company, which he is doing fantastically well. What do you expect him to say to the market? This the the games sector not mining or pharmacueticals. They cant give the same kind of info and insights as so much is about timing/marketing/reveals. Unless you'd like an RNS every time they announce a new animal for Planet Zoo there isnt much to say. They getting on with things and making millions, as a good company should.
This may suit day traders to make 2p on a day, lose 6p the next day, as a LTH forget it
Quite why this is down 6%, on profits of 600% (so says the report) mystifies me, but not surprises me as FDEV's attention to the market and shareholders is virtually non-existent, the pratt Braben needs to hire PR - he is the main drag to this **** poor share.
Cash balances increased £11.2 million during the year to £35.3 million (FY18: £24.1m) with operating cash flow (operating profit excluding non-cash items, less investments in franchises and other game related intangible assets) providing an inflow of £15.4 million in the period (FY18: an operating cash outflow of £2.8 million).
Forecasts and valuation
We have made some immaterial changes to our franchise assumptions but overall our revenue, profit and cash forecasts are broadly unchanged FY20, FY21 and FY22
Potential upside to forecasts
We showed our revenue assumptions in Figure 26 and they are show again in detail in Figure 33. In terms of upside to these forecasts we would highlight four factors to watch; 1. The paid-for update for Elite Dangerous could be more material than we expect (historically ED has delivered well over £20m of revenue in a year).
2. New consoles could provide an opportunity to release Planet Coaster and Planet Zoo on consoles (this led to a major uplift in sales for ED when for example it was released on PlayStation in June 2017)
3. We expect Management to announce new franchises in development over the next few months. Currently we assume new games achieve revenues in the range £15m to £30m in their year of release. Clearly FDEV could release more games than we expect and any game could potentially match JWE's first year revenue (£65m+)
4. Third-party publishing (3PP) deals could accelerate over the next 2 years. We currently only assume £10m in our FY22 forecasts for the Haemimont Games deal.
Valuation: BUY, Target Price 1800p
Frontier Development's shares are off around 40% since their £18.25 peak in June 2018. This largely reflects investors focusing on lower revenues in FY20 after the major JWE led financial success in FY21. However, investors need to look through the dip in FY20e to FY21e for a major inflexion point - the company is now effectively one financial year away from being a globally leading AAA game developer with potentially 6 franchises contributing “repeating” revenues and generating substantial free cash flow. The growth potential of the business is increasing (partly through leveraging publishing deals and licensed IP) and the game concentration risk is decreasing. In our view the business has obvious attractions for equity investors and is leading asset in a sector where a number of major global technology and media
companies are making big strategic investments.
Finals: Record year, ahead of forecasts
Jurassic World Evolution accounted for a large proportion of the total annual revenue of £89.7m (FY18: £34.2m) through its strong launch in the first month of the financial year on PC, PlayStation 4 and Xbox One (Liberum forecast £84.4m). Elite Dangerous and Planet Coaster continue to deliver sustained revenue from both sales of the base game and PDLC, and sales of Jurassic World Evolution in the second half of the financial year. Self-publishing revenue accounted for 99.8% of sales in the year (FY18: 95%) with the significant majority being digital sales. Physical sales represented around 15% of total company revenue in FY19 (FY18: 7%), with disc sales of Jurassic World Evolution on PlayStation 4 and Xbox One accounting for around one third of the base game unit sales of Jurassic World Evolution on console during the period.
Gross profit was £54.6m in the year (FY18: £24.1m) with gross margin at 61% (FY18: 70.5%). The significant growth in gross profit resulted from the increase in revenue achieved from the launch of Jurassic World Evolution.
The reduction in gross margin percentage to 61% reflects the expected royalties payable to Universal Games and Digital Platforms on sales of Jurassic World Evolution and physical disc sales of Jurassic World Evolution which are lower margin than digital sales.
Gross research and development expenses in the period grew by 33% to £21.2m (FY18: £15.9m). The continued growth reflects further investment to support Frontier’s franchise portfolio strategy, through increases in internal staff combined with greater levels of outsourced activity. As at 31 May 2019, Frontier had grown its total headcount to 466 staff compared to 377 at 31 May 2018. Net research and development expenses recorded in the income statement in the period were £14.9m(FY18: £8.5m), being gross spend, less capitalised costs, plus amortisation charges.
Sales, marketing and administrative expenses grew to £20.4m (FY18:
£12.8m). This substantial increase resulted mainly from three factors: i) higher marketing costs to support the launch of Jurassic World Evolution in June 2018; ii) higher bonus costs, as the bonus scheme is based on profit, which was significant in the period; iii) higher facilities costs following the move into new premises in April 2018.
Operating profit of £19.4m (Liberum forecast £18.3m) in the year (FY18: £2.8m) represented an operating margin of approximately 22% (FY18: 8%).
The substantial increase in both profit and profit margin reflected the strong sales performance in the period and the operational leverage of digital distribution and the company's financial model.
• Awaiting announcements to fill in the revenue forecast jigsaw: These announcements, together, with the 4 existing franchises (post the launch of Planet Zoo) give us increasing visibility of our 3 year revenue projections. We could get announcements of future franchises at any time.
An own IP game would be announced to investors to maximise the commercial success of the game (probably 6 months ahead of release to coincide with the launch to the player community). A licensed IP may possibly be announced much earlier before release, because of the likely materiality of the deal, as was the case with JWE and the game above. As the chart above shows existing and announced games account for 64% of our FY22 revenue forecast, so by implication we are guessing at new game timing and size for 36%. However, to put that in context in FY22 we only model £45m for un announced games. As we highlight later, in our view there is potential major upside in this assumption.
• Own IP vs Licensed? Within the debate of own IP versus third-party IP, many believe that movies and sports franchises produce the most successful games. This view is supported by high performing franchises such as FIFA, Star Wars and Jurassic World. However, by analysing the 2017 and 2018 top 100 best-selling games for both PC and console, the vast majority of best-selling games are original game IPs. Nevertheless, it is clear from the Board’s statement that the company is in discussions with a number of IP owners. It is also the case that the success of JWE has given management the luxury of being fairly selective in their partnering discussions.
• Pricing: Given all the above Planet Zoo has a higher retail price than the release of Planet Coaster. Frontier has seen good demand for the higher priced Deluxe version (currently 33 in the Steam best seller charts) helped by the invitation for those players to join a beta launch of the game in the next few weeks.
Future franchises: own IP, licensed and 3rd party publishing
First publishing deal
Last year the FDEV Board outlined a strategy to accelerate the game release cycle through external partnerships including third party publishing agreements where Frontier brings other developers' games to market. In June they announced their first partnership with Haemimont Games, which has a team of over 60 people in Bulgaria, experienced in the strategy and
management game genres, developing the hit title Surviving Mars (city building simulation game with a Metacritic score of 76 and published by Paradox) and 3 titles in the Tropico series (a construction and management simulation game covering 6 releases and reported to have sold more than 1m units). The partnership will see Frontier and Haemimont work together on a new project for release we expect in FY22, with Frontier providing the development funding as well as marketing and distribution. This is low risk for Frontier (we would guess maximum development and marketing spend of c£5m) and potential high return given the company's IP and publishing knowhow and what we assume is an attractive profit share. We only assume £10m revenue in our FY22 forecast.
Licensed IP release in FY22
In March Frontier announced that it has signed a major global IP licence to develop and publish a future game. An announced two year development cycle would suggest a game launch in the summer onwards of calendar year 2021. There will clearly be a lot of speculation as to the IP. We note it is again a “major global IP” and that the game is likely to be launched on both console and PC. Frontier’s first self-published licenced title, Jurassic World Evolution, released in June 2018 on PC, PlayStation 4 and Xbox One alongside the theatrical release of Jurassic World: Fallen Kingdom achieved 1 million base game unit sales in five weeks and 2 million base game units in seven months.
Therefore, we guess this game could have a similar profile, although it’s unknown at this stage as to whether it may benefit from a film launch or a similar ‘IP event’. We only assume £30m revenue in our FY22 forecast.
Planet Zoo: franchise four launched Nov 5
In April 2019 Frontier announced its next major release would be Planet Zoo, launching exclusively for PC on 5 November 2019. Frontier aims to make Planet Zoo the ultimate zoo simulation, featuring authentic living animals, rich management, and limitless creativity. In Planet Zoo players can build and manage a truly modern zoo where animal welfare and conservation comes first.
• Planet Zoo will present the most authentic animals in videogame history.
Players will nurture their animals throughout their lives, study and manage every species to see them thrive, and help them raise young to pass their genes onto future generations. Players can manage their zoo in an expressive world that reacts to every choice they make, as they choose to focus on the big picture or go hands-on and look after the smallest details.
• In addition with powerful creative tools players can create scenery and habitats, dig lakes and rivers, raise hills and mountains, and carve tunnels and caves as they build their own zoo. Players will see their animals and visitors respond to their creative vision, and can share their designs with friends in Planet Zoo’s online community.
There are a number of reasons why we expect this game to be a success in terms of player reception and revenue.
• Substantial experience in the genre: In 2013, Microsoft Studios released a new Zoo Tycoon game, developed by Frontier Developments for Xbox One and Xbox 360, with the game being very successful and continuing to sell today. In addition FDEV's very successful track-record in developing construction and management games (most recently PC and JWE) heavily
de-risks Planet Zoo technically and commercially. The experience not only helps in terms of optimising Planet Zoo's game design, art, animation and overall quality but Management have also proved that they can plan and execute successfully the future PDLC roadmap.
• Established brand followers: A further de-risking factor is the growing Frontier reputation and brand within the gaming community and the implied opportunity to market Planet Zoo to current players of JWE and PC. Whilst FDEV do not have the player data for console gamers they do for PC players on Steam (the launch platform for Planet Zoo). It is difficult
to assess how engaged current FDEV customer are with Planet Zoo but looking at YouTube viewing data gives a very rough guide. Currently viewership of Planet Zoo videos is similar to JWE and 2-3x higher than PC.
We do not know the breakdown but it is reasonable to believe that current core players for both FDEV’s existing construction and simulation management franchises are engaged with the launch of Planet Zoo.
• In addition to the free updates, players are able to introduce further content into their parks through the purchase of PDLC packs. The most recent, the Ghostbusters pack using Sony Pictures IP, released in June 2019. The Ghostbusters pack took the game on a new direction, introducing a narrative scenario that directly tied into the original film, in which Dan Aykroyd and William Atherton reprised their iconic roles.
• The combination of free updates and PDLC packs is an important part of Frontier’s strategy for Planet Coaster, as they keep the game fresh for existing players and help attract new players into the game.
Jurassic World Evolution: franchise three
Jurassic World Evolution (JWE) was released on 12 June 2018 during the E3 exhibition in Los Angeles and one week after the launch of the latest film in the franchise, Jurassic World: Fallen Kingdom. This was Frontier’s first selfpublished game based on licensed IP (from Universal Studios)
• Jurassic World Evolution evolves the players’ relationship with the Jurassic World film franchise, placing them in control of operations on the legendary island of Isla Nublar and the surrounding islands of the Muertes Archipelago. Players create and manage their own Jurassic World as they bioengineer new dinosaur breeds and construct attractions, containment,
and research facilities.
• A high-quality game, robust marketing strategy and the promotion around the movie launch set JWE to a very strong start. Ahead of its release, JWE already featured among the top selling games on Steam and upon its release it came second in the UK's top 40 charts where it has featured ever since. The company announced recently that the game had now sold over 2m units.
• Jurassic World Evolution’s first PDLC pack was available at launch and as a ‘deluxe’ bundle during pre-order. Consistent with FDEV’s strategy for their first two titles, they have released a number of free updates since launch and have also provided players the opportunity to engage with paid-for content. To date, they have released five separate PDLC packs in
total. As with Planet Coaster, the combination of free updates and PDLC packs is an important part of the strategy. The game has been a major financial success in FY19. We estimate total revenues in FY19 were over £65m. In its second financial year, typical of the profile of all games, sales of new games will be materially lower but given the large player base and PDLC release schedule we forecast £25m of revenues in FY20.
• FDEV has launched simultaneous releases of regular free content updates on all supported platforms. These updates add to the quality of the game, renew the interest of existing players and also generate additional
awareness across traditional media and social media platforms, resulting in new sales. The attach rate of Elite Dangerous: Horizons (a chargeable major expansion pack), to the base game continues to grow steadily, helped by the regular free updates. This has contributed to a long-term track record of revenue delivery. Further free updates are planned in FY20
(sustaining revenue) and a major paid-for release is expected in FY21 (which could result in a jump in sales in that year). In addition to the Horizons expansion PDLC (paid downloadable content) Elite Dangerous offers a wide range of personalisation opportunities with relatively low priced PDLC items. These already contribute meaningfully (multiple
millions of revenue per year) but that could be set to rise further with the introduction of Arx, a new virtual currency, coming later this month.
Planet Coaster: franchise two
Planet Coaster is a coaster park simulation game and builds on Frontier's genre-defining expertise with coaster park games such as RollerCoaster Tycoon 3 and Thrillville.
• Planet Coaster was successfully launched in November 2016 after a short Beta period, achieving the global #1 position on the Steam distribution channel and continuing to sell strongly through the subsequent holiday period.
• Players can construct and manage coaster parks, build the rides and manage the operations. Importantly, they can then share their parks, ride and scenery with other gamers. The game has a metacritic score of 84.
Planet Coaster was one of Steam’s Top 40 sellers of 2016, despite being released within six weeks of the year-end (November 2016).
• The game is only available on PC given the processing power required to deliver the quality of game-play. Management continue to review the potential to launch the game on consoles with the release of next generation Microsoft and Sony platforms later next year being an obvious opportunity in our view.
• In accordance with FDEV’s strategy, they began to release free updates soon after launch, each of which added headline features but also expanded and improved different creative and management aspects of the game. 15 free updates have now been released for Planet Coaster, starting with the Winter Update one month after launch in December 2016 and
continuing at regular intervals, with the latest released in June 2019.
FY19 sales highlight franchise success
Franchise strategy: develop profitable, long-running games
Six years ago Frontier Developments began the transition from being primarily a developer of video games for major external publishers, into a business that leveraged its IP and know-how to self-publish its own game franchises directto-consumer using cloud based distribution. Alongside this the company invested in building out the key elements of a digital publishing organisation to manage e-commerce, web development, event management, customer support, PR, community management and worldwide promotion. The success of the strategy has been reflected in FY19 revenues of £90m in FY19
(+162%), benefitting from the investment in own IP games Elite Dangerous and Planet Coaster and the company’s majorly successful licensed IP (with Universal Studios) Jurassic World Evolution.
Elite Dangerous: franchise one
Frontier’s first self-published game, Elite Dangerous, was released in December 2014 with periodic updates, and was followed by a paid-for series of expansions known as Elite Dangerous: Horizons in 2015. Elite Dangerous is Frontier’s biggest selling game franchise to date.
• The multi-language game is available on Windows PC, Microsoft Xbox One and Sony PlayStation 4. Elite Dangerous is a space flight simulation and combat game.
• Players launch their space ships, set a course and explore the galaxy (the entirety of the Milky Way is re-created at its full galactic proportions). The game is interoperable between versions and players are able to join up with other players (allies) and together launch combat missions, trade and earn recognition for their success (the target is to be promoted to Elite).
• The game has a metacritic (leading gamer review site) metascore of 80 which is comparable to other major franchises. It was in Steam’s top 100 sellers of 2016 despite over 4,000 new games being released on Steam in the year, illustrating the quality of the game and the long digital shelf life.
FDEV’s record FY19 results are ahead of our forecast, highlighting their strength as a leading videogame developer and publisher, with an estimated £65m+ of sales from licensed Jurassic World Evolution. Own-IP games continued to benefit from player engagement and there is a pipeline of releases, third party publishing and partner discussions running out to at least FY22. Not only is there increasing visibility of that Year 3 forecast but we believe there is upside as Management announce new games and deals. Investors need to look through the current, post record, down earnings year and focus on paying a P/E of 15x to May’22 for a core holding in a UK SMID fund.
• FY revs up 162% to £90m
• Op. profit up c. 600% to £19m
• JWE delivered over £65m est revs
• Net Cash £35m
• Signed licensed IP and 3PP deal
• FY20-22 forecasts unchanged
• Revs and Profit lower in FY20 (after stellar FY19)
• Increasing visibility of rev growth FY21/22 (64% FY22 announced)
• Planet Zoo releases Nov 5
• Announced licensed IP FY22
• First 3PP deal – FY22.
• Additional free and paid content across all existing franchises Valuation
• Shares 40% off their high (Jun’18)
• Trading at 15x FY22 P/E
• TP maintained at 1800p
• Leading AAA developer as tech heavyweights invest in the sector
I don’t think they will leave 2020 without a game release. I believe they are wanting to now at least maintain one game a year. The major IP is scheduled for a 2021 release, but that doesn’t mean we won’t see another game in the mean while. And I fully expect to!