Following the strategic reset from Frontier Developments PLC (AIM:FDEV) earlier this year, the company announced an operational review, including cutting up to 20% of costs, and reiterated its guidance for revenue for the 2024 financial year.
Costs will be cut via recruitment freezes, spending cuts and redundancies, which several analysts noted has been a recent trend among gaming industry companies.
"Frontier stepped outside its comfort zone in recent times, and has previously communicated its determination to return to its core, with the focus back on creative management simulation games," said analyst James Lockyer at broker Peel Hunt.
He noted that the review should deliver an EBITDA profit in the 2025 financial year.
He said the fact the management expressed confidence with consensus revenue of £108 million "bodes well" for the Realms of Ruin launch, coming in November.
"We believe it was inevitable for a business that has failed to deliver on several areas outside its comfort zone that cost cuts would likely follow, but today’s news is more than that. Frontier has content with an ROI that is repeatable, and backed by precedent."
He said he was erring on the side of caution by assuming a 10% cost reduction, leading to an upgrade of FY25 forecast EBITDA from a loss of £8 million to a £1 million profit, and for FY26 from a loss of £2 million to a profit of £2.5 million.
Shore Capital analyst Katie Cousins, who not long ago issued a 'sell' note on the shares, noted they had fallen around 30% since.
"We will look to review our recommendation and target value following today’s update; however, we remain cautious on the near-term outlook given that the key catalysts we said were needed before turning more positive are still yet to occur.
"We believe industry restructuring and job cuts could be seen as supportive of demand growth within the outsourcing market and therefore a positive for Keywords Studios over the medium/long term.
"To meet busy development pipelines, and control a flexible cost base, businesses are likely to rely more on outsourcing services, in particular within QA and localisation, in our view. On the other hand, the risk is that projects are cut or delayed, which could lead to further downgrades across the development/publishing sector."