The disappointing sales of its latest video game caused an earthquake in the price of Frontier Development, a British video game company, which last Monday lost a third of its market capitalization. The cause of this stock debacle, which plummeted 31% in a single session, has to do with Jurassic World Evolution 2, the latest gamble from this Cambridge-based company.
The company, which is listed on the London AIM market and has become a favorite on the stock market, acknowledged that sales of Jurassic World Evolution 2 for PC have been lower than expected since its launch earlier this month.
Frontier has cut its revenue forecast for the second time this year.
The game developer estimates that it will earn between £ 100 million and £ 130 million through May (between € 118 million and € 154 million), compared to a previous forecast of between £ 130 million and £ 150 million (€ 154 million to 177 million).
Jurassic World Evolution 2 – which has received positive reviews – has sold well in the console format. But PC sales have not lived up to expectations. This hit joins the sales the company had focused on, Elite Dangerous: Odyssey, which have been worse than Frontier expected.
Analysts say the company is being affected by the end of the Covid restrictions, after sales in the video game sector soared when the lockdowns arrived in 2020. Last year, the shares of this company registered a return of 159% and in 2019, 59%.
Russ Mold, Chief Investment Officer at AJ Bell, stated: “Unfortunately, video game companies have been eager to take advantage of the momentum of the pandemic, rushing to launch new titles, so the market has been very saturated right at the moment where players had a lot of new alternatives to keep busy. “
The competition is tough in this sector in which companies are betting everything on a new launch. Jurassic World suffered from rivalry from other highly anticipated games that came out at a similar time, Frontier said, adding that sales of its space-themed game Elite Dangerous: Odyssey have been “more subdued.”
After this profit warning launched by the British company, some analysis firms have revised their valuations downwards. “It’s a disappointing update,” said Citigroup analyst Thomas Singlehurst, who has a buy recommendation for the company. For his part, Singlehurst maintained its price target of 3,510 pence while analysts at Liberum and Jefferies cut their estimates on the stocks.
Even so, Frontier shares, which accumulated a 45% drop in the stock market for the year, have good recommendations from the consensus of analysts. Of the 14 experts that Bloomberg collects, 64.3% (nine) recommend buying, while 28.6% (four) advise keeping in the portfolio and only 7.1% (one analyst) believe that it is time to undo positions.
As for the target price, experts see a potential run for the stock at 12 months of 46.7% compared to current trading prices.
Frontier currently has more than 560 employees and is “continually growing.” In fact, the company is looking for candidates in many disciplines, both graduates and experienced people, to work on its projects on advanced gaming platforms, as the company claims on its website.
Frontier founder David Braben began working in the gaming world in 1982, when he co-authored the Elite game. David founded Frontier in 1994 to build a team that continues to create quality, innovative games in the rapidly evolving games industry.
Activision Bliizard. The video game industry giant and owner of the popular Call of Duty and World of Warcraft franchises, has acquired the Spanish studio Digital Legends, founded in 2001 by Xavier Carrillo and specialized in games for phones and tablets. Among other titles, the Barcelona-based company has developed Battlefield Bad Company 2 and Respawnables Heroes, which have been downloaded and played by millions of people.
Ubisoft. This French company, a direct rival of Frontier, has a capitalization of 5.5 billion euros. During 2020, its shares revalued 40% but it has lost everything it gained last year so far this year.
Enad Global 7. 2020 is not being a good year for the shares of this Swedish video game company, a period in which it lost 76%. However, the preceding two years were brilliant for the company with profitability of 634% in 2020 and 62% in 2019.
Digital Bross. It is an Italian company in the video game sector that, contrary to the trend in the sector, is experiencing a sweet moment on the stock market this year, with a 45% profitability since January. This is his third consecutive positive year on the stock market. In 2020, its shares appreciated 91% while a year earlier, its shares gained 189%.