What’s going on with the Frontier Developments (FDEV) share price?

The Frontier Developments (FDEV) share price collapsed today following its latest results. Zaven Boyrazian investigates.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Frontier Developments (LSE:FDEV) share price collapsed 25% today after the company released its half-year report. This latest drop has pushed the stock’s 12-month performance to a devastating -60% return for existing shareholders like me. So let’s take a look at what’s going on and whether I should be concerned.

Frontier Developments’ share price versus earnings

As a quick reminder, Frontier is a game development studio behind several popular franchises, including Elite Dangerous, Planet Coaster, Planet Zoo and Jurassic World Evolution.

Despite the post-trading update share price collapse, the results had some promising aspects. Most notably, revenue for the six-month period ending in November 2021 grew 33%, reaching £49.1m. This growth is mainly attributable to the release of Jurassic World Evolution 2, combined with continued sales from existing titles and expansion packs.

Sadly, the increased sales didn’t translate into higher profits. Due to marketing expenses promoting the launch of Jurassic World and license royalty fees for the IP, EBITDA came in at £14.1m – a 10% drop versus a year ago.

Combining this with adverse movements in foreign exchange rates, the group ended up reporting an operating loss of £1.3m. Needless to say, that’s not a welcomed sight. So seeing the FDEV share price fall as a consequence is hardly surprising to me.

Looking to the future

As frustrating as it is seeing profits dwindle, the situation may only be temporary. December sales volumes, which reached record-breaking highs, weren’t captured in this latest report.

Meanwhile, two new games, FAR: Changing Tides and Warhammer 40,000: Chaos Gate – Daemonhunters, are being released through its publishing arm later this year. Frontier’s first annual release of Formula 1 management games is also coming out in the second half.

Meanwhile, the June release of the Jurassic World Dominion movie is expected to dramatically boost sales of its Jurassic World Evolution 2 game. And with another Warhammer title scheduled for 2023, future growth prospects continue to look solid, in my opinion.

Overall, management has updated revenue guidance for its FY2022 ending in May to be between £100m-£120m. And the outlook for FY2023 has been revised to £130m-£160m. Both are lower than the guidance provided earlier in 2021, and that has most likely contributed to the rapid decline of the FDEV share price today. However, the updated figures still imply a double-digit growth rate, which is an encouraging sight. At least in my view.

The bottom line

All things considered, my perspective on this business hasn’t changed on the back of this report. The reduced guidance and seemingly temporary drop in profitability aren’t great. But the company’s long-term potential and pipeline of future projects continue to look promising.

Therefore, today’s drop in the FDEV share price seems like a potential buying opportunity for me to increase my existing stake.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian owns Frontier Developments. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »