Shares in fantasy worlds video game developer and publisher Frontier Developments (FDEV:AIM) dropped 25% to £13.32 after management lowered guidance again after delaying the release of its Warhammer Age of Sigmar IP real-time strategy game.
The company reported an operating loss for the first six months to 30 November and narrowed its forecast revenue guidance for 2022 to between £100 million and £120 million from £130 million at the top end.
The consensus expectation according to Refinitiv data is in the middle of the range at £115 million while Shore Capital has penciled in £116.5 million and said it is ‘happy’ with the estimate, implying no change to forecasts.
While it could be argued that narrowing the range provides greater clarity and technically the middle of the expected range hasn’t changed, the company has effectively wiped out £10 million of potential upgrades.
It is also worth noting that at the beginning of the current financial year in June 2021, analysts were expecting revenues of £146 million, so even delivering in the middle of the latest range implies a shortfall of 21%.
Arguably the bigger disappointment is that the company has lowered guidance for 2023 revenues by around 15% to a new range of between £130 million to £160 million from £160 million to £180 million, communicated in September.
Consensus expectations currently sit at £160 million, implying more earnings forecast downgrades from analysts.
SILVER LINING
One piece of good news for investors is that following disappointing sales of Jurassic World Evolution 2 on the PC in November, the company managed to avoid a bad Christmas.
Frontier said the game delivered a ‘very strong’ second month of sales which contributed to a record December with existing games contributing solidly.
It seems a shame that management haven’t learned the benefits of under-promising and over-delivering as despite earnings downgrades the underlying business is growing at a healthy clip.
Meanwhile the release schedule remains positive with the company’s first foray into Formula 1 during the 2022 season and the cinema release of the Jurassic World Dominion film in June 2022, which is expected to provide a further boost for the game.
