Frontier Developments and Team17 released trading updates over the past couple of days painting a mixed but overall positive picture of consumer spending on non-essential items such as video games and related subscriptions and products.
Frontier Developments
Frontier Developments (FDEV ) reported an increase in revenue of 16% in H1 2023 year-on-year to £57.1m through the release of F1 Manager 2022 and ongoing sales of existing games, and new PDLC (paid-downloadable content). The company also reported a gross profit margin of 63% and a rebound in operating profit to £6.9m, driven by higher revenue and lower R&D expenses.
However, Frontier also warned that sales performance in the half year fell below expectations, partially due to increased player price sensitivity. Additionally, Frontier said it has been reassessing its strategy for Frontier Foundry, its games label for third-party publishing, and focusing on ROI. While the company remains committed to its Foundry titles scheduled for release in FY23, it does not have any Foundry titles scheduled for FY24.
Frontier's net cash balance stood at £42.6m at November 30, 2022, an increase of £3.9m during the period, despite an £8.8m cash outflow in November 2022 for the acquisition of Complex Games. The company's adjusted EBITDA remained as a small net outflow, reflecting continued investment in future titles and support for existing games.
In FY24, Frontier expects revenue growth to be 5% above the revenue outcome for FY23.
Team17
Indie developer Team17 (TM17 ) said the group traded "strongly" in H2 2022 with several new first and 3rd party games released, and extended distribution to new platforms.
As a result, Team17 said revenue and adjusted EBITDA for FY22 will be significantly ahead of market expectations, with "strong growth" compared to FY21 as a result of having a wider and better performing portfolio, supported by acquisitions and new hires made over the past 2 years.
Team17 said it was mindful of the cost of living crisis and "changing global economic trends", but still expressed confidence for FY23 and its future product pipeline.
"We look forward to 2023 with an exciting pipeline of releases and updates as well as ongoing ROI from the investments we have made in people and products." said Debbie Bestwick MBE, CEO.
Team17 will report full-year results in March 2023.
View from Vox
Overall, results from the two companies show that despite the cost of living crisis and global economic slowdown, consumers are still willing to spend money on non-essential goods, especially on home activities as pandemic habits die hard. Grocery giants' surprisingly good results over the Christmas period showed the same thing.
Team17's update was all good news, particularly the full-year EBITDA upgrade and affirmation of M&A's effectiveness. Markets rewarded the company accordingly, sending TM17 stock up 7% yesterday.
Frontier's story is more nuanced. After a difficulty two years, the company's shares tanked another 50% last week after it lowered its full-year revenue forecast to a minimum of £100m from a previous expectation of £135m, while still remaining hopeful it can beat last year's £114m. It is debatable, however, the extent that is attributable to general consumer price sensitivity, as the bulk of the downgrade was related to the poor sales performance of Frontier's F1 Manager 2022 title released in August.
Frontier still reported 16% revenue growth in H1 2023 and a rebound in operating profit to £6.9m from a £1.3m loss a year ago. Frontier continues to maintain a strong balance sheet with £43m in cash on November 30 2022 after the £8.8m acquisition of Complex Games. The company remained optimistic for its FY23 and FY24 roster and expects 5% revenue growth in FY24 above FY23's performance. Shares rebounded 5% on the news yesterday and are up 8% since last week's bottom. A further rebound is expected should FY23 revenues surpass last year's £114m.
Follow News & Updates from Frontier Developments: and Team17: