The seeds for Frontier Developments PLC were planted back in 1982 when video games were thought of as little more than children’s toys. In those days, few people would have predicted that the video game industry would one day surpass both the movie and music industries in terms of gross revenue. And yet, that was the year that David Braben co-authored Elite, a genre-defining space sim that would help launch his career – and eventually Frontier Developments.
Twelve years after seeing the release of Elite, Braben would go on to found Frontier Developments in hopes of seeing more success in the burgeoning video game industry. Nearly twenty-five years later and Frontier Developments has not only developed and published a number of their own popular IPs, they’ve also done work with major licenses such as Disneyland, Wallace & Gromit, and – most recently – Jurassic Park.
Their newest title, Jurassic World Evolution (JWE), was released on June 12 for Xbox One, Playstation 4, and PC. A mere five weeks after its initial release, cumulative sales for JWE hit the 1 million unit mark, leading analysts to increase their unit shipment forecast from 1 million to 1.8 million, a sizable jump. Sales were likely helped by the concurrent release of the film, Jurassic World: Fallen Kingdom.
Originally, forecasted revenues to May’19 for JWE sat at £37 million. After the initial success that the title has seen, that number has been bumped up to £59 million. This isn’t only due to in-store or even digital sales. This number also takes into account the fact that, with the advent of downloadable content and expansion packs, video games have become more of a long-term service rather than a single purchase.
Additionally, Frontier Developments has a history of handling these kinds of upselling options well as their success with Elite Dangerous (currently still going strong in its fourth financial year) has shown.
Over all, Frontier Developments is poised to continue an aggressive push, in the development of new titles as well as the support of legacy ones. They’ve increased projections for costs of marketing and administration. In addition, they’ve increased their projected Adjusted Profit from £14 million to £19 million. This would put their adjusted EPS at 42p.
If all goes well and JWE continues to sell as it has, first year sales could easily hit 3 million. At an average sale price of £33, this would add an extra £39.6 million to their coffers. And since digital downloads have steadily grown – and involve very little overhead – most of that additional revenue would move straight to before-tax profit. Under this optimistic scenario, 2019 earnings per share could rise as high as £1.30-£1.50 depending on any extra costs incurred.
With all of that said, despite Jurassic World Evolution’s success, there is a potential bump in the road. Few of Frontier Development’s recent titles have seen the initial success and buzz that JWE has. So, unless they’re able to route some of that revenue back into the development of a similarly popular game – a feat that is by no means sure – then earnings could easily begin to drop off in 2019/2020.
At this point, Frontier Developments hasn’t even announced their next major title or franchise so there’s more than a little mist obscuring what may lie ahead in the years to come. But for now, Frontier Developments is certainly worth looking at if you’re looking to diversify your portfolio and dip a toe into the growing video game industry’s pool.