Frontier Developments Share Discussion Threads

[p1nkfish] 01/1/2017 23:35

As VR takes off, it's not even started yet, I see FDEV getting a major boost as ED is developed for VR from the base upwards and I would gather other FDEV games wil be too.

Good VR games will fly as must haves until VR become passe which isn't likely for the first few years. Big growth ahead.

hxxp://www.nanalyze.com/2016/12/what-is-virtual-reality-like/

hxxps://www.elitedangerous.com/en/made-for-vr/

[thegaminginvestor] 30/12/2016 23:01

Glad to hear thar AIM is at least working well for you guys.The easiest for me to trade (outside US) have actually been the Polish gaming companies and also Italien as they are on MIFID regulated exchanges. Soon Starbreeze will change its listing to a MIFID regulated market place so it will be easy to trade for anybody.

[m4ybe] 30/12/2016 12:34

I have similar issue investing in other European game companies outside UK, I don't think any of my brokers trade them (would like to know any that do) but the US listed ones are easy from our UK point of view.

[m4ybe] 30/12/2016 12:26

I think it just slows the liquidity and reduces the company's work on regulation. If there are fewer buyers there are also fewer sellers. ASOS (ASC) did very well on AIM, and had Anders Holch from Denmark buying chunks up to 27% in the years before the top, who is now buying up much of Scotland.

A lot of small software companies (TRD etc) have great trends but are a bit short term overbought at the moment, so I think this is just settling down so that we can see where we trend relative to the others longer term.

[thegaminginvestor] 30/12/2016 11:13

Re AIM.I am not sure how it is for you in the UK but for us in Sweden trying to reinvest our Starbreeze profits, it has been more difficult to trade on AIM than to trade illegal goods in Elite Dangerous.Has anyone spoken to the company about doing something about this horrible marketplace? The shares will probably always trade at a discount to peers as long as it is on AIM. For reference 3 of the largest Swedish brokers did not even allow me to trade on aim, and those who did had major problems getting the orders executed.

[culford] 30/12/2016 10:10

In posts above, makw61 and I speculated that the profitability may have moved up from break even to c£15m with launch of second game. Half yearly/yearly profits are distorted by timing of game launches so it will never be too important to focus on one period. If we look at y/e May 2017, we will 7 1/2 months of PC revenues for the first time. In the period to end 2016 it will have sold c500k PC games at an average price of say £27.5, or £13.75m gross, £12.3m net of 12% average VAT. The gross margin/contribution from this will have been at least 70%, or £8.6m. Those 500k of sales happened over 40 days during launch, autumn sale and winter sale at a daily sell through of c12,500. If we assume that in remaining 150 days of y/e May 2017, PC sells at c3000 per day at full price (launch and peak/sales season over but increased viral effect of 1/2m games out there with >90% positive reviews), then gross revenues in remainder of year will be £13.5m, post VAT £12m and gross profit/contribution will be c£8.4m.

Thus if ED has sold c£20m again in the year and covered all costs, the increase profitability should be c£17m. The if is a big IF as it looks as though underlying ED sales are running at a lower level on Steam and the end result will now depend very much on timing of PS4 launch, scheduled for Q2 2017. If this happens before end May, expect the profit of FDEV to be significantly greater than £15m. If it falls after May, the benefit will be in following year and profits could be £12-15m.

For the share price the rerating to 450p of £150m now should be a formality. If investors start to rate the company on the same basis of other listed games companies, and reflect on its high promise over future years, then it will rise significantly higher as discussed above.

[hastings] 30/12/2016 07:45

Yes looking very positive Culford.As an aside, the FDEV car park was pretty rammed in the run up to Xmas, which at the least suggests they are very busy people.

[culford] 30/12/2016 01:44

Up another 16,000 sales per Steamspy today to 467k games sold. Looks like PC should exceed 500k games sold by end of Steamspy sale on 2nd January 2017. That should make for a positive update in early January 2017 by FDEV. It was cash neutral with one game and must be generating good cash now its now firing on 2 cylinders. Look forward to FDEV announcing plan for 3rd game next month.

[bamboo2] 29/12/2016 08:54

I added this morning, on the basis of the chart pattern confirmation.

[bamboo2] 29/12/2016 08:47

culford, the end-of-day close above the all time high is a positive development on the chart. This means the resistance provided by the old high can be seen as support.

Dont rule out a re-test of the previous ath at approx 307. The price could really do with taking a breather and forming a consolidation zone. If a flag is formed I will calculate a new target based on the length of the previous flagpole.

The target for this pattern as a bowl/cup is a minimum of 371.

[m4ybe] 29/12/2016 06:31

The Steam global top sellers I have above PC are all heavily discounted, or alpha priced in the case of Astroneer. I'm tempted by a couple of those big names myself as the sale will be over in a few days. Impressive acceleration for PC, I guess the imminent end of the sale (2nd Jan I think) is drawing attention to Steam, so PC is benefiting from getting noticed.

Active players have become higher than for ED so there is high engagement too.

The tools.garry.tv/steamchart list has it in position three and above recently released Astroneer. It seems to be sorted by popularity, if so that's very impressive.

[culford] 29/12/2016 00:50

PC slipped down to bottom half of top 10 today but global owners went up by 20,000 to 450k on Steamspy. It is hard to understand versus its position in steam global top sellers list but underlying trend good and thats another £1/2m of gross revenue booked in a day!

I would think the company needs to update stock market in early January as to the level of success of its second game which is clearly impacting on the share price!!

Less turnover on the stock market today than on Steam with 100k shares or c£300k in value traded. That is improving liquidity for FDEV though and this should get better now it is above the £100m market cap. level. The share price closed above its historical high which Bamboo has said makes it v difficult to forecast now; he suggested c370p next i seem to remember. Thanks to GI we now know the comparative multiples of other listed emerging game publishing companies (8-10x revenues). If its heading that way we are very early in this share price action!

[makw61] 28/12/2016 09:03

Thanks culford and GI for your recent posts. Haven't really looked at European games developers much before so seems a good area for further research (the only one I had come across was Paradox, being a big HOI4 fan, but it looked expensive when I had a quick look at it previously). I do agree with GI that the AIM-listing is holding back the valuation here and that is very evident when FDEV is compared against it's European peers.

Steam top sellers are ranked by value not volume so I guess that partly explains the Astroneer anomaly (the developer is privately-owned unfortunately as it looks a promising game).

As an aside, I was slightly surprised by PC's launch price of £30 when arguably it was a more polished game than ED was at launch and which was priced at £40 from memory. It's probably quite an interesting trade-off between price/volume and perhaps it's easier to sell DLC against a £30 launch price than when people have already shelled out £40?

GLA

[phowdo] 28/12/2016 07:37

Steam best sellers is numbers sold in a specific region.
Best sellers for UK will likely be different to USA for example.

[thegaminginvestor] 28/12/2016 05:27

Does anyone know if the Steam best sellers list is only looking at number of games sold or is it also looking at total value?Astroneer being cheaper than planet coaster could thus be selling more copies but for less total value.I guess steamspy avoids bias by randomly picking steam profiles to sample.

[culford] 28/12/2016 01:39

Thank you GI, very helpful. The Steamspy methodology will explain why the reported owners goes down sometimes which appeared odd. I wonder if their sample population varies each day and how they avoid biases in the sample. Yesterday Astroneer went up by 25k and PC by 10k owners on Steamspy which again looks odd against the best sellers list, but I presume this will all even out over the long term.

Will be interested in seeing your updated forecasts and valuation - will that be in January?

[thegaminginvestor] 27/12/2016 20:54

Hi! Here are answers to some of the questions:

Re forecast for PC sales for FY2017. Remember that FY2017 ends in May and I was trying to be conservative, and I did my estimates in October. I was assuming something like 400,000 units sold at full price and another 250,000 units sold at
different discounts.

Re Steamspy numbers. I am not sure you are all familiar with how Steamspy works. It looks everyday at 0.05% (if I remember correctly) of the over 125m. public steam profiles and over a 3 day average makes a statistical estimate of how many people own a certain game. So the numbers are going to be flawed in the short term, and it will only reflect sales that show up in peoples public steam profil.

Culford, I like your way of analyzing the value of the company by basically doing an NPV of each franchise. A strong franchise is very valuable and that is why I like FDEV and prefer it to for example THQ or Focus which have many smaller franchise, but non of which have the some longevity as the Frontier franchises.

Re Starbreeze which I follow closely. It might look expensive on multiples but their game Payday 2 has 7.3m owner according to Steamspy which is more than GTA V. So they have a HUGE potential going forward to monetize that franchise, especially as Smilegate (owners of the largest and most profitable FPS worldwide, CrossFire, are a large owner and board member of the company.)

[culford] 27/12/2016 14:07

Further to GI's post above, here is an investment presentation by an FDEV competitor, Starbreeze, highlighting positive global trends, including digital distribution and the growth in VR. Please note that with two franchises launched and similar revenue and growth rates, Starbreeze is valued at >£500m, 5x the current value of FDEV !!



Clearly some value being ascribed to its VR developments. It also has greater liquidity but this will come with greater market cap. for FDEV.

[culford] 27/12/2016 14:06

Further to GI's post above, here is an investment presentation by an FDEV competitor, Starbreeze, highlighting positive global trends, including digital distribution and the growth in VR. Please note that with two franchises launched and similar revenue and growth rates, Starbreeze is valued at >£500m, 5x the current value of FDEV !!



Clearly some value being ascribed to its VR developments. It also has greater liquidity but this will come with greater market cap. for FDEV.

[culford] 27/12/2016 13:20

GI
Your comparative valuations are very interesting and, as you say, make FDEV look very cheap. If these early stage quoted games companies are being valued at 8-10x revenues, that would be £300m-400m for FDEV (revenue run rate c£40m), or 900p to 1200p per share. On the face of it that looks very high. However it reflects the trends that Mckw61 kindly pointed out in post 183 above. The easing of distribution has increased the value of content makers like these games publishers. They are creating franchises with long term value and receiving much of value that previously went to Nintendo, Atari, Microsoft (Xbox) or Sony Platstation.

In a post above I crudely valued the PC franchise at £150m, or 450p per FDEV share on its own. To set out my crude forecasts in a little more detail, taking into account a franchise profile as set out in post above for Planet Coaster:
2 million games sold at gross value £30 each = £60m Years 1 & 2
3 million games sold at gross value £20 each = £60m Years 2 & 3
5 million games sold at gross value £10 each = £50m Years 4 & 5
2 million DLC1 sold at gross value £10 each = £20m Years 2 & 3
4 million DLC2 sold at gross value £10 each = £40m Years 3 & 4
6 million DLC3 sold at gross value £10 each = £60m Years 4 & 5
Total = £290m over 5 years

The PC franchise would thus generate £290m gross over 5 years. Realistically there will be sales through this period so lets discount all sales by 15% - giving gross sales of £246.5m. FDEV's average sales tax is 12%, so the net revenue it might receive over 5 years would be £220m under above scenario. If one then deducts 30% distribution costs, that would leave £155m for PC's franchise vale to FDEV or 450p per share.

If one applies similar maths to ED one can see how a sales multiple of 8x and a value of 900p could be reached. As FDEV has pointed out, analysing the company on 6 monthly or even annual cut off points can be misleading due to timing of launches etc. Thus H1 2016/7 should look good with 2 weeks of launch of PC included. Likewise H2 will look good with a full 6 months of two games; ED and PC. It could be spectacular if PS4 launch is included - but that may fall into H1 2017/8. Overall, market needs to look through this and decide whether the company has created a long term franchise or not. The successful launch of PC (>400k units sold in first 5 weeks) and c2m unit sales of ED sold suggest FDEV has two franchises and share price is beginning to wake up to this.

Incidentally GI, the £220m forecast net Planet Coaster sales for FDEV over 5 years averages out at £44m per annum which is significantly higher than your forecasts. Perhaps I have had too much brandy?

[culford] 27/12/2016 11:03

GI
I re read your note and thought you had got your forecasts wrong as despite a full year of PC in FY 18, the launch of ED on PS4 in 17/18 and the 3rd game in FY 19 you have gross profit up £6m between FY17 and FY19 and net profit up less than £1m. On closer inspection they are not wrong but assume declines in the revenues and profitability of franchises which is not my understanding of the pattern of franchise games.

I think that the numbers of games sold for ED and PC should increase as: 1. they add to the distribution platforms (thus ED has done PC direct, then PC through Steam, then Xbox with PS4 next) and they steadily reduce the price of the core game. Thus ED launched at £40, then fell to £20 with first DLC Horizons priced at £20; at launch of 3rd DLC presume core ED will fall to £15 and ED/Horizons to £30 with DLC3 priced at £15? Final decline will be core game to £10 with ED/Horizons/DLC2 at £30 and new DLC at £15? All this over a life of game of c10 years (we are two years in already), with revenues increasing in first half of life of game and declining in 2nd half in a normal curve shape.

Thus PC which can now be seen to be a success might sell 2m games off the £30 price, 3m games when it declines to £20 and 5m games when it falls to £10. At the end of 5 years a DLC priced at, say £10, could be selling to an audience of 10m holders and could sell say £50-70m - greater sales than in the launch year.

Would be interested in your views on this?

[bamboo2] 27/12/2016 10:10

Hi culford, Price is now close to the all time high. 307 represents the last point of historical resistance. An end of day close above this level, opens up some attractive near term targets, in blue sky. Alternatively, price could consolidate at this level forming a handle, and gathering strength. I'll keep a close watch on patterns as they develop.

Eod close above 307 sees a target up around 371

Unfortunately advfn charts are not working correctly for the time being, so I will post later when it is fixed.

[culford] 27/12/2016 09:19

Hi Gaming Investor
Good to have such professional research on here, much appreciated.
My initial take on your numbers is that you were light on the PC forecasts for FY 2017, which should be north of £20m. A bull valuation you have of 450p now looks underpinned and upside from there will depend on: ED launch on PS4, continued development of PC and the new game to be announced in January.

Can I ask a couple of questions. Firstly, on Steam sales there appears a discrepancy between SteamsSpy and the top seller list (using Gary's blog to analyse). per Steamspy - Astroneer has sold c105k games in past 4 days and PV has sold c25k games. Yet PC has been above Astroneer in all of that time. Do you have an explanation? My hunch is that SteamSpy algorithms are missing sales generated from the PC website. Secondly, do you have a view on the pricing and potential sales of ED on PS4? My guess was £39.99 for a combined ED+Horizons [ackage launch and a million games sold in first year?

Overall well done on your call - might explain the increased interest and share price action in past month.

[thegaminginvestor] 27/12/2016 06:23

I am new to this Forum but not to FDEV. I wanted to share my analysis of the company which can be found here, I am planning to update it now that the stock reached my short term target. Any input is much appreciated.