The FDEV results for the six months leading to 30th November 2013 were released this morning. (So pre-alpha)
Most interestingly to us there was no mention made of the expected release date of ED, to the best of my knowledge, despite this being one of their most significant expected revenue streams they have never given a date to investors.
Here's everything they say about ED:
With regards to the results themselves:
The headline numbers was a 15% fall in revenues to £5m and the company made a loss of £37k against a profit last year in the same six month period of £2m. The vast majority of revenues were from work done for other publishers such as Atari, this clocked in at £4.6m. Revenues from existing royalties was £291k. Revenues from self-published games (which I assume is entirely ED) were £137k.
However, I would expect to see in the next six month a fairly big increase in ED revenue, for the reason that as they launched the alpha in Dec, they will then book all the KS money for the alpha as revenue. Which I guess would be whatever proportion of the £200 tier, minus the value of the other rewards in your package X the number of alpha backer.
The group also seem to have experienced some difficulty with the Coaster Crazy franchise with revenues from the free-to-play game disappointing leading to a £280k impairment.
A big change was in the groups loss of Gross Margin. The portion of each pound in sales that was profit on the sale in itself, before you stop to consider things like office costs and salaries etc. In this period the margin declined from 37% to just 5%. This was describe in somewhat vague terms as ‘cost passed through on publisher contracts’.. If I were an investor I would be definitely looking for further information on what this means.
The running costs of the business increased 41% to £1.8m up from £1.3m with no great increase in property of equipment costs, suggesting an increase in staff.
Other titbits include a statement that now 34% of the people at FDEV are working on ED.
If these results were read in isolation they would be considered worrying, and actually the bit about the large gross margin reduction due to these vague ‘costs passed through’ could be. But ultimately the picture should not be that surprising to us. Costs are going up and revenues are declining as the company spend more time and resource on developing ED. I am getting the sense given the large gross margin reduction on the publisher games that ED is more critical to the company than they would originally have liked.
Without ED there is a question on the current valuation. But of course with ED it’s possible that the company is a lot more attractive. People will have to take their own view on that based on their expectation of the game and the quality of what they have seen so far. However, they can take comfort that the revenues in the full year figures will see a spike from ED as money from the alpha backers cash goes into the figures.
Most interestingly to us there was no mention made of the expected release date of ED, to the best of my knowledge, despite this being one of their most significant expected revenue streams they have never given a date to investors.
Here's everything they say about ED:
Operational highlights
Eliteangerous Backers - to date over £2.31m raised from 43,537 backers
Delivering on strategy
Elite: Dangerous Alpha successfully launched December 2013
Support for the Oculus Rift virtual reality headset
David Braben, Chief Executive of Frontier Developments, said:
"These are hugely exciting times for Frontier. We have entered an important investment phase of our business as we move to deliver high growth in the medium to long term through refocusing our business from a low margin cost plus business model to one of a significant revenue share.
"The self-funded investment we are making in Elite: Dangerous will continue to bear fruit over the next six months as we make further releases such as the recent Alpha 2.0 multiplayer build and beyond, in parallel with developing new projects with strategic publisher partners."
Elite: Dangerous will be sold directly to customers through Frontier's own e-commerce platform and through third parties.
Frontier expects Elite: Dangerous revenues to grow gradually in a similar way to other PC online games, but also that it will hit a quality resonance at which point revenues would increase significantly, as it did for those other titles.
Focus strongly on the development and launch of Elite: Dangerous
Elite: Dangerous
Frontier has continued to generate substantial interest in the Elite: Dangerous project, with the game being cited as one of the most anticipated titles of 2014 by several media outlets.
In December 2013 the Group launched the first phase of the Alpha test of Elite: Dangerous. This tested out the flight controls for the game's spaceships in different combat scenarios, and included support for the Oculus Rift virtual reality headset and other 3D display technologies. The alpha version of Elite: Dangerous is accessed via Frontier's own retail channel, the capabilities of which continue to be developed.
At the time of writing Frontier has received backing from 43,537 people generating over £2.31m of pledges and pre orders.
Current trading and outlook
In the year ended 31 May 2014 the Group expects to further execute its plans to continue with publisher funded projects, focus strongly on the development and promotion of Elite: Dangerous, and continue to invest significant resources in the development of its technology, as it evolves to become a business which develops and licenses technology to support games for major external publishers, other developers and Frontier's own self-published game titles.
With regards to the results themselves:
The headline numbers was a 15% fall in revenues to £5m and the company made a loss of £37k against a profit last year in the same six month period of £2m. The vast majority of revenues were from work done for other publishers such as Atari, this clocked in at £4.6m. Revenues from existing royalties was £291k. Revenues from self-published games (which I assume is entirely ED) were £137k.
However, I would expect to see in the next six month a fairly big increase in ED revenue, for the reason that as they launched the alpha in Dec, they will then book all the KS money for the alpha as revenue. Which I guess would be whatever proportion of the £200 tier, minus the value of the other rewards in your package X the number of alpha backer.
The group also seem to have experienced some difficulty with the Coaster Crazy franchise with revenues from the free-to-play game disappointing leading to a £280k impairment.
A big change was in the groups loss of Gross Margin. The portion of each pound in sales that was profit on the sale in itself, before you stop to consider things like office costs and salaries etc. In this period the margin declined from 37% to just 5%. This was describe in somewhat vague terms as ‘cost passed through on publisher contracts’.. If I were an investor I would be definitely looking for further information on what this means.
The running costs of the business increased 41% to £1.8m up from £1.3m with no great increase in property of equipment costs, suggesting an increase in staff.
Other titbits include a statement that now 34% of the people at FDEV are working on ED.
If these results were read in isolation they would be considered worrying, and actually the bit about the large gross margin reduction due to these vague ‘costs passed through’ could be. But ultimately the picture should not be that surprising to us. Costs are going up and revenues are declining as the company spend more time and resource on developing ED. I am getting the sense given the large gross margin reduction on the publisher games that ED is more critical to the company than they would originally have liked.
Without ED there is a question on the current valuation. But of course with ED it’s possible that the company is a lot more attractive. People will have to take their own view on that based on their expectation of the game and the quality of what they have seen so far. However, they can take comfort that the revenues in the full year figures will see a spike from ED as money from the alpha backers cash goes into the figures.
