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Investors overreact to Frontier Developments' downgrade
Frontier Developments (FDEV:AIM) £16.88
Loss to date: 25.5%
Original entry point: Buy £22.65, 22 July 2021
Investors might be prepared to give management the benefit of the doubt after one downgrade to expectations, but a second one is tougher to swallow as it so proved for Frontier Developments (FDEV:AIM), whose shares dived 32% on 22 November after it reduced full-year revenue guidance by around 18%.
Despite encouraging pre-order sales of new game Jurassic World Evolution 2 with unit volumes on each platform comparable to levels experienced ahead of the launch of Jurassic World Evolution in 2018, PC sales were lower than anticipated.
This was at odds with trends seen on other platforms with sales on PlayStation and Xbox consoles of both digital and physical versions coming in as expected.
Management believes the problem was one of timing with the launch coinciding with several other rival games.
The company is pinning its hopes on a Christmas sales lift and a further boost in June when the latest Jurassic World movie is released. The company believes the first year’s revenues for JWE2 will eclipse those for JWE1.
SHARES SAYS: The share price move was an overreaction to what may prove, in all probability, to be a short-term timing issue. The strong roster of game releases including the company’s first foray into F1 next year keep us buyers of the stock.