Frontier Developments Share Discussion Threads

[m4ybe] 07/12/2016 13:18

I get position 3 too, so it must be sorted by general rank as you say. Breakout hopefully, appropriate chart for the developer of a rollercoaster game.

[culford] 07/12/2016 12:27

Found the global top sellers list where PC currently 3rd and top of non sale games.



Has now been in or near top for a month so bodes well for immediate and longer term results. Negative feedback (less than 10% of reviews) focuses on high spec, which requires top end computers which will prevent it being a global blockbuster. They also focus on relatively weak management aspect of game, compared with creative building, which should be improved over time.

Share price suggests market beginning to wake up....

[culford] 06/12/2016 12:24

Makw61
Agree on the leverage point. FDEV management has been building games for games companies for 30 years and has spent considerable sums building its own software system, Cobra. They talk about this all the time as it enables them to be much more efficient/effective versus their competitors - e.g. ED was launched at end 2014 and its major competitor, Star Citizen, has still not launched. It enables them to develop games for multiple platforms (PC windows, Apple, Xbox, PS4 (when is that happening...)and they have licensed this capability to a customer in the past year. They are also largely based in one location; Cambridge. They have still a lot to learn on marketing and selling, having only recently gone from B2B to B2C. It will be interesting to find out what cost they will need to add to assist on marketing/sales and to add a further game.

A major European competitor is Ubisoft, which has grown using acquisitions. This may come later for FDEV but I like their focused organic strategy of developing one new franchise game at a time - they must have a lot of ideas put to them and can just focus on the best one, whilst continuing to develop and grow their existing ones.

[makw61] 06/12/2016 10:34

I've been tracking steamspy sales daily since mid-Sept and they seem fairly sensible (e.g. higher sales at weekends). There was an article on the site a little while back to the extent that the feedback from Valve employees was that steamspy actually undercooked sales by around 5% and I believe the algo has been recalibrated to that effect. The thrillseeker edition sold well so 89k doesn't seem unreasonable.
The daily movements are of course very iffy as the margin of error is typically greater than one day's sales e.g. I'm showing a -71 move from yesterday which is complete nonsense.
Culford, you're probably right as I tend to be far too cautious in my estimates! Your figures do look a little high to me though - I think you would need to take c.20% off your £30 unit figure for VAT which is not Frontier's revenue. VAT rates are similar across the EU, not sure how sales in US are treated. £25 might be a safer figure overall, I don't know for sure. Looking forward to seeing some more numbers so I can refine my model!
For me, the great thing about Frontier is how they achieve so much with relatively few people. The salary bill is only around £12m which seems amazingly low. Profits should absolutely motor in H2 once all the fixed costs are covered.
They also spend relatively little on marketing, although I've noticed the ED trailer a few times on Youtube recently. Bit of a waste as I own the game of course...reminds me of the old adage "we know that half of our marketing spend is wasted but we don't know which half". I would think Youtube is a relatively cost effective medium though and measurable of course. The target market seems right as well so hopefully this is Frontier investing a little of the PC revenue to boost ED? Would love to see that PS4 port....
Anyway seems to be a bit more volume in the stock recently - just need that stock overhang to clear for the shares to rise.
GLA

[phowdo] 06/12/2016 10:02

Seems theres a bit of stock available at this level.
Ive added to my position over the last few days as the transition to having multiple products available as well as in development should see good bottom line growth now.

Tracking online sales not as simple as the old days where subscribers to NPD could get ahead of the market.

Planetcoaster system specs are a little high to truly enter blockbuster PC sim sales territory but should have a extended shelflife and not need discounting to maintain sales.

[culford] 06/12/2016 09:49

The Beta release was on 9th November and PC was top of charts through the Beta period so the 89k may not be far out. Not sure how they clock those that buy direct from Frontier and get a Steam key for free? Overall as you say both games going well and H1 will have both sets of sales on for first time. Even though this is only for 2 weeks it was through launch and the Steam sale and it looks as if sales were very strong...

[m4ybe] 06/12/2016 05:02

The SteamSpy data is a bit iffy as on the 16th before release it says 89k owners. But I think it'll give the general picture, and probably scaled a bit wrongly one way or the other.
Long term internet trends I'm seeing are that the interest in both games put together is a decent uptrend over the months and years.

[m4ybe] 06/12/2016 04:46

culford I noticed the top sellers list is sorted by "relevance" which could be any algorithm. It's top position now in Thailand for some reason, and number 3 in UK. US version could be viewed using a proxy website for the States. I guess just being on this page is the good news.

The SteamSpy data, although a bit risky to rely on, is what's convincing me at the moment that things are very good. Even assuming they just get £20 per sale after various sales costs and corporation tax because it's profit - that's a tenth of market cap coming in potentially as profit per month!

[culford] 05/12/2016 22:37

M4ybe - hadn't realised that position could be different by country - as you say would be good to know how to look at US store from here.

Makw61 - Disagree with you on H1 sales. H1 2015/6 had sales of £10.9m, with sales of £10.5m in H2. There were more units sold in H1 but at a lower price as there was discounting during the black friday sale.

In early September 2016 we were told that trading in Q1 2016/7 was better than expected, albeit this is a low period. It looks like for H1 2016/7 c350k PC games sold at c£30 - c£10.5m and probably 300-500k units of ED at c£20 or £6m to £10m. That suggests revenues up 50% to 90%. As business was break even (made £400k in H1 2015/6) the increase in net revenues should flow through to bottom line i.e. 70% of incremental sales to bottom line, or £4m to £7m. Agree that H2 will be even more significant with 6 months not 2 weeks of PC sales and including Christmas trading then winter sale for 2 games. However H1 profits could be materially higher and thus require a trading update this month.


SteamSpy has estimates of sales data on it which suggests almost 300k PC sales by end November. This, plus >50k direct sales on Frontier website leads me to estimate H1 sales of c350k above.

[makw61] 05/12/2016 16:22

I'm not expecting the H1 result to be dramatically different to 2015 (which included the Xbox launch of ED). PC sales will be c.300k units and ED something similar I would guess, compared to ED sales of c.600k in H1 2015. The uplift will be seen mainly in H2 when we see a full six months sales of PC and I expect management will not feel comfortable updating full year guidance until they've seen the level of sales in the key December trading period.

I hope I'm wrong as I think it's going to take a trading statement to get the share price moving. There appears to be plenty of stock available - Chris Sawyer has been a seller in the past so maybe he is trimming his holding. We will only know if he goes below the 3% disclosure level. Been some decent buys today so hopefully the share price will soon start to reflect the progress the company has made.

GLA

[culford] 04/12/2016 15:38

I think it will be very difficult not to give an update in December as looks like sales up by c£10m in H1 (PC sales of c350k x £30 = £10.5m) - that is material and not in market consensus/brokers research. Encouragingly PC still top of Steam charts as I post and it has been top or near top since Beta launched on 9th November....that is pretty significant at peak trading time of year and reviews are still >90% positive....looks like this game has legs and could be repeat of RCT3 which sold >10m.....

[p1nkfish] 04/12/2016 01:17

They might just wait until January for the Trading Update to add comment on the Christmas period even though after the 6th month close.

[culford] 29/11/2016 10:00

p1nkfish you are right that this tends to be very illiquid. Interestingly there is stock about at present which is surprising. FDEV now firing on 2 cylinders and has transitioned from making games for others and making a few £m profit to being a self financed publisher of its own games. It has more than 30 years experience of making games successfully for others. In that time it developed a very strong technical platform, Cobra, and has a very well regarded team of people. It now has c£10m in the bank and two successful franchises generating >£20m of cash per annum. This will allow it to step up its growth rate by adding a new game each year. It should also be able to start paying dividends this year. Share price won't be at this level next year.

[p1nkfish] 28/11/2016 12:32

I've been adding very slowly. Price can move quickly and any large buy is not easy without shifting the price. Looks ready for a move.

[culford] 28/11/2016 12:12

PC has been top selling non discounted game during the Steam sale and in top 3 games through the Thanksgiving/BlackFriday sale period. The trading update for 6 months to end November last year was on 19th January, when they announced sales up 50% to £10.9m. I would now expect that the increase this year will be >50% and the overall business, with two self published games selling, will become very profitable. My estimate right now is sales of >£50m for year to May 2017 (the step change up they have been hinting at) and cash flows of >£20m even though 2nd game will have been around for only just over 6 months.

[culford] 24/11/2016 14:06

Makw61

The complaints seem to be game management (should be improvable over time), the large computing power required with some people experiencing crashes, and the lack of Chinese and other languages (also could be remedied in time). Sales have accelerated into the Thanksgiving sale on Steam and the reviews have become more favourable!! Could be on course to do c500k units by end November which would definitely require a trading update in December...Lets hope it continues to ripple out successfully....

[makw61] 23/11/2016 16:01

Hi culford,

Couldn't agree more. Based on the different scenarios I've modelled, the share price could be between 3 and 10 times what it is currently in the next few years. RCT3 sold 10m units so big numbers are definitely possible.

Not sure if the sub £100m market cap means some funds can't invest in this, or the fact it is on AIM, or indeed that David B owns such a large stake means it is difficult for institutional investors to acquire a meaningful stake? I guess I will just have to be patient and let the numbers do the talking!

Thanks for the point about the Steam reviews; I hadn't realised that my settings were defaulted to English so I had missed those.

The positive reviews have remained very high as you say, which is very encouraging. Some negative comments around the management aspects of the game but my view is that that aspect is unimportant for many, and is easily improved as DLC (paid for or otherwise). Also I'm sure additional rides will be offered as DLC / season passes.

ATB

[culford] 23/11/2016 14:16

hi makw61
At present sales c£20m from one game - 30% distribution costs to steam etc leaves net revenue of £14m which covers all cash costs - cash has been pretty stable at £8-10m over past two years.

1m extra sales of 2nd game PC at £30 is £30m gross and £21m net which should all flow to bank, although profits may be lower as non cash depreciation increases. But the new level of £20m of cash flow with only two games in sales with the company to add one more per year from now suggests a multiple of at least 10x cash flow or £210m or 3x current share price.

Looking at the Steam site, 1/3 of reviews are not in English, with many requests for a Chinese language version. The reviews are 90% positive, suggesting there is every chance that this game becomes a blockbuster with sales >10m over next few years, with paid upgrades in due course. The cash flow could thus be a lot higher than the base case above. I am also surprised that market has not woken up yet.

[makw61] 23/11/2016 13:14

The market has been very slow to wake up to the potential here. My base case is identical to that above i.e. 1m units of ED and of PC per year for revenue net of Steam fees etc of c.£40m against cash costs of £25m to £30m i.e. underlying operating profit of £10m to £15m (not sure how the amortisation of development costs will impact reported profits but those costs are already spent!). Incremental sales kick in £20 per unit bottom line so another 1m sales of PC would increase profit by £20m to up to £35m.
Current market value is under £70m and there is cash in the bank. I feel like I must be missing something?
Looking forward to the next trading statement so that I can reconcile my numbers - Steamspy will not include Xbox sales of ED but I'm not clear if it includes PC sales via Frontier's website where the customer activates their Steam key and PC then appears in their Steam account?
I thought the share price would be motoring by now, but maybe we will have to wait for the trading statement for the market to wake up.
Interested to hear also what the next franchise will be. Frontier have some history in platform games (Lost Winds) but those are not particularly fashionable currently. I would like to see something for PC, Xbox and PS4 to maximise sales. Still waiting to see the PS4 port for ED and I suspect PC is too demanding to port to current generation consoles (they have confirmed no VR for now for the same reason but the hardware will catch up in a couple of years I'm sure).
GLA

[culford] 23/11/2016 08:29

Yes Planet Coaster has been top of the best sellers list for more than a week now and SteamSpy estimate sales of c200k. If you add the sales by Frontier direct it is probably c300k games sold in total now, or £9m in revenues. That is a major step change up for Frontier and there should be a very positive trading update in December after their 1/2 year to end November - worth accumulating now.

[m4ybe] 23/11/2016 05:31

Planet Coaster current in-game users on Steam was 15,000 near the daily peak yesterday, just at one moment in time. Even at the daily low point now while most people sleep it's 6400.

So I bought some FDEV yesterday. This looks like all profit to me if their costs are covered by Elite, which currently has a fraction of the users. The Minecraft style creative model could keep users attached and hopefully sharing content for a long time to come. This isn't Minecraft but I can see the lean towards that direction, and that sold for billions. And if anyone understands getting high performance 3D graphics right it's David Braben.

[p1nkfish] 22/11/2016 20:06

Yes, Catalysts kicking in and pleased they were early in VR. VR opens up many future opportunities. Shift to a new price level more than likely. Hold and buy on weakness.

Pleased to see this developing. Great British potential.

[culford] 22/11/2016 11:47

Further to the post above, Frontier's annual sales with their first game have been c£20m per annum or £400k per week. The 2nd game released last week (Planet Coaster) is selling at c£600k per day. This clearly won't last for ever but all the indications are that it will be a substantially bigger selling game and that sales will more than double off the current cost base. The third game will be announced in the next few months and we will get an update on early Planet Coaster sales.

[culford] 22/11/2016 08:15

Market will wake up to Planet Coaster success at some stage soon. Game launched on 17th November last week and has been top of Steam sales charts since. Initial sales are running at c20,000 games per day, or c£600,000 per day at £30. It looks as if it should hit at least the bottom end of the 1-3m per annum range which suggests that FDEV's sales have moved to a new level more than double previous levels.