Today’s statement from video game developer Frontier Developments (LSE: FDEV) contained some exciting news I think could propel its share price a lot higher, in time. Before looking at this, let’s quickly check out how this top-performing UK growth stock has traded in recent times.
According to Frontier, strong sales of games and downloadable content in what remained of the previous financial year (to 31 May) has helped bring revenue to roughly £91m. This is impressive for two reasons. First, it’s a record figure. Second, the company has managed this feat without any new franchise announcements.
It gets even better for those invested. Today, CEO David Braben said Frontier plans to grow sales over the next financial year “by 50% above the record revenue just achieved.” This may sound fanciful. However, based on recent news, I think this target might actually be achieved.
New games announced
Yesterday, Frontier announced it was working on a sequel to its immensely popular 2018 game, Jurassic World Evolution. The dinosaur park management simulation is currently scheduled for release this year. Featuring the voices of actors from the related Hollywood movies, the game will be available on all major platforms.
But Frontier’s line-up for FY22 doesn’t end there. Having been launched on PC, the mid-cap will also bring its space simulation game Elite Dangerous: Odyssey to Playstation and Xbox consoles also this year. On top of this, “at least three new titles” from partner studios will be released via the firm’s publishing label Frontier Foundry. These include Warhammer: Chaos Gate – Daemonhunters, based on the franchise owned by Games Workshop.
Naturally, all this should do no harm to the UK growth stock’s top line. Revenue projections for FY23 now range £130m-£150m. This rises again to £160m-£180m, based on additional titles hitting the shelves.
Not all rosy
Despite this impressive schedule, today’s statement also served as a reminder that Frontier isn’t immune to setbacks. The need for staff to work from home over the last year delayed the release of the aforementioned Elite Dangerous: Odyssey. Unfortunately, this isn’t an isolated case. The release of the F1 management game had now been put back to after 1 June 2022.
There are other potential headaches. Games encounter problems even after they’ve been let loose. Back in May, the company had to spend 36 hours fixing a fault on its latest title that prevented some players from getting their gaming fix. At such a pivotal point in a game’s lifecycle, that’s clearly not ideal.
Factor in ongoing competition and an already-rich valuation and it’s perhaps no surprise that some investors were banking profit today. Despite sales and news on a highly-anticipated title, Frontier’s share price is down nearly 8%, as I type.
Personally, I see this as an opportunity for me to climb on board. Gaming is already worth more than the music and movie sectors combined and I can’t see this popularity flagging in the years ahead. Indeed, along with automation, clean energy and electric vehicles, I suspect this sector will prove one of the key investing megatrends over the next decade.
As such, I’d be comfortable taking a stake in this UK growth stock now. Should the reversal in the share price continue, I’ll back up the truck.