Frontier Developments warns on profit and Devolver Digital trims guidance

Two AIM-listed computer game firms have forecast lower-than-expected sales on Monday in a sign that the industry is not immune from the cost of living crisis.

Frontier Developments shares crashed 40 per cent after the Cambridge-based firm warned on profits as it sold fewer games than previously expected during the crucial Christmas period.

Meanwhile, peer Devolver Digital also trimmed sales guidance after a weak showing for some of its releases over the festive period, sending shares falling 13 per cent.

Frontier said its racing game F1 Manager 2022 was well received when it launched in August, but the strong sales performance failed to continue in December

Videogames companies have had a couple of strong years, benefiting from repeated lockdowns that saw players splash out on new games, but have struggled of late amid the cost of living crisis.

‘Computer games were clearly not just a pandemic fad, but there’s no doubt the industry seems to be finding life tougher of late,’ said AJ Bell’s investment director, Russ Mould. 

‘Computer games are not cheap and anyone looking to save money to help pay the bills might see them as something that can wait until another day as there are other priorities for their cash.’

Frontier said its racing game F1 Manager 2022 was well received when it launched in August, but the strong sales performance failed to continue into December, falling ‘materially below original expectations’.

It said this was ‘potentially due in part to increased player price sensitivity related to worsening economic conditions’.

Sales of its own-produced games, which include 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 disappointed over Christmas.

This, coupled with an ‘uncertain’ contribution from its Foundry arm, which publishes games developed by partner studios, led the firm to warn of lower sales and profits in 2023.

‘[…] the board no longer expects to achieve the FY23 market consensus forecasts for revenue and IFRS operating profit, being £135million and £19million respectively, ‘ it told investors today.

Chief Executive Jonny Watts added: ‘It is very disappointing to be resetting our financial expectations. 

‘We intend to grow the number of our development teams to increase the cadence of new releases, whilst continuing to nurture our existing portfolio, to achieve sustainable growth.’ 

Frontier shares were down 40 per cent to 598p in afternoon trading on Monday. They have lost around 65 per cent of their value over the last year. 

Meanwhile, US firm Devolver Digital said that ‘difficult market conditions’ experienced in December contributed to ‘disappointing’ profits in 2022 and warned these would continue into 2023. 

The firm behind indie video games including Cult of the Lamb and Return to Monkey Island said it now expected 2022 adjusted profit to come in between $20million and $22million, down from $25.7million in 2021.

It put this down to three underperforming titles, and weaker than forecast sales volumes in December.

Devolver shares were down 12 per cent to 55.95p in afternoon trading on Monday. They have lost around 73 per cent of their value over the last year. 

This post first appeared on Dailymail.co.uk