Frontier Developments warns on profit and Devolver Digital trims guidance
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Cost-of-living crisis weighs on video game industry: Frontier shares fall 40% after earnings warning as Devolver Digital trims guidance
- Frontier sold fewer F1 Manager 2022 games in December than expected
- Frontier partly blamed ‘increased price sensitivity of players’
- Devolver Digital cut sales guidance after weak results for three games
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Two computer game companies on the AIM list on Monday forecast lower-than-expected sales, a sign that the industry is not immune to the cost-of-living crisis.
Frontier Developments Stocks fell 40 percent after the Cambridge-based company warned of profits as it sold fewer games than previously expected during the crucial Christmas period.
Meanwhile, colleague Devolver Digital also cut sales guidance after a weak performance for some of its releases during the holiday season, sending shares down 13 percent.
Frontier said its racing game F1 Manager 2022 was well received when it launched in August, but its strong sales performance did not continue into December
Video game companies have had a few strong years, benefiting from repeated lockdowns that saw players try new games en masse, but have struggled amid the cost of living crisis of late.
“Computer games clearly weren’t just a pandemic craze, but there’s no question that the industry seems to be finding life more difficult lately,” said Russ Mould, investment director for AJ Bell.
“Computer games don’t come cheap and anyone wanting to save money to pay the bills might see them as something that can wait until another day because there are other priorities for their money.”
Frontier said its racing game F1 Manager 2022 was well received when it launched in August, but its strong sales performance in December fell “substantially below original expectations”.
It said that this’possibly due in part to increased price sensitivity of players associated with deteriorating economic conditions.”
Sales of its own-produced games, including Elite Dangerous, Planet Coaster, Jurassic World Evolution 1, Jurassic World Evolution 2 and Planet Zoo, were in line with expectations in the first half, but again fell short during Christmas.
This, coupled with an “uncertain” contribution from its Foundry arm, which publishes games developed by partner studios, led the company to warn of lower sales and profits in 2023.
‘[…] the board no longer expects to meet the FY23 market consensus forecasts for revenue and IFRS operating profit of £135m and £19m respectively,” it told investors today.
Chief Executive Jonny Watts added: “It is very disappointing to adjust our financial expectations.
“We plan to grow the number of our development teams to increase the cadence of new releases, while continuing to nurture our existing portfolio to deliver sustainable growth.”
Frontier shares were down 40 percent to 598p during midday trading on Monday. They have lost about 65 percent of their value in the past year.
Meanwhile, US company Devolver Digital said “difficult market conditions” in December contributed to “disappointing” earnings in 2022 and warned it would continue into 2023.
The company behind indie video games, including Cult of the Lamb and Return to Monkey Island, said it now expected adjusted earnings for 2022 to be between $20 million and $22 million, up from $25.7 million in 2021.
It attributed this to three underperforming titles and weaker-than-expected sales volumes in December.
Devolver shares were down 12 percent to 55.95p during midday trading on Monday. They have lost about 73 percent of their value in the past year.