- Frontier Developments cuts full-year revenue estimate on back of weak sales of Jurassic World Evolution 2
- Shares tumble to a new 12-month low
Frontier Developments (FDEV) had high hopes for its Jurassic World Evolution 2 game, which it released on 9 November. The initial reviews implied this was a good step forward for the franchise, but consumers have not so far come to the Park in droves. Frontier's share price crashed by over a third at the start of the week when the company said sales of the game "over the initial period following its release have been lower than expected on the PC platform”.
Frontier said a lot of other “highly anticipated” titles on PC were released at the same time.
It continues to forecast Jurassic World Evolution 2 to overtake Jurassic World Evolution in terms of revenue in the first 12 months of its release, but because of the initial issues, revenue guidance for the full-year 2022 has been revised down to between £100m and £130m. Before this update, the consensus forecast compiled by FactSet was for revenue of £140m.
This is now the second underwhelming release of the year. Elite Dangerous: Odyssey was beset with glitches when it came out in May and CEO David Braben issued a public apology. The company will hope to get gamers' - and the market's - confidence back with the Warhammer and F1 releases, which are coming out next year.
We referred to Jurassic World Evolution 2 in our Investment Ideas section last week as a bull point for buying into the stock. This seemed reasonable given the success of the prequel and the highly anticipated related film release due in June. We did not foresee this short-term hit.
While the trading update has had a significant downwards impact on the share price, we stick with our buy recommendation. While Jurassic World Evolution 2’s underperforming sales figures do come shortly after the issues with Odyssey, we are confident that there is nothing systemically wrong with Frontier’s business. Frontier remains a company with sound fundamentals, and its medium to long-term prospects look strong. A lower share price represents a good opportunity for investors to take the plunge. Buy.
Last IC View: Buy, 2,455p, 18 Nov 2021
- with Christopher Akers