The gaming sector shows no signs of slowing down as results from Frontier Developments PLC (AIM:FDEV) and Keywords Studios PLC (AIM:KWS, OTC:KYYWF) today clearly demonstrate with both companies posting 20% plus gains in revenues as the demand and appetite for new releases remains strong.
A recent PwC report suggested the gaming industry could be worth $321bn by 2026, up from $235.7bn in 2022.
The expansion is being driven by social and casual gaming after millions of people picked up their controllers to escape the boredom and isolation of COVID-19 lockdowns.
Spending on video games made up just 6.1% of global spending in the entertainment and media sector in 2017, but by 2026 they are projected to grab a 10.9% share as gaming becomes even more mainstream, the PwC report said.
This trend should benefit both Frontier, Keywords and others in the industry such as Team17 Group PLC (AIM:TM17), tinyBuild Inc (LSE:TBLD), Activision Blizzard Inc (which is being taken over by Microsoft) and Ubisoft Entertainment – although the pressure to develop new content, and in Keyword’s case, support the industry will remain intense and competitive.
Attention will focus on cash balances given the up-front development costs involved in new game launches but both Frontier and Keywords have healthy balances of £38.7mln and €121mln respectively as the strong cashflows keeps coffers topped up.
Looking ahead, both Frontier and Ubisoft have a strong pipeline of games ready to come to the market – Frontier has confirmed further details of upcoming launches including three titles from its Foundry third-party label during full year 2023 while sales of F1 Manager 2022 (launched on August 30) are said to be strong.
Beyond this, the Foundry release of Warhammer Age of Sigmar is expected in the 2024 full year, and the group is said to be in development for a new title for 2025 as well as early stage scoping for a 2026 game.
Frontier clearly believes in its product range, now and in the future, having set a target for revenue growth of 20% per annum across the medium term, which broker Shore Capital thinks is achievable for the current year.
Ubisoft’s release schedule also looks strong with Mario and Rabbids: Sparks of Hope and Skull and Bones to be released on October 20 and November 8, 2022, respectively, while Avatar Frontiers of Pandora will now release in 2023-24.
Earlier this month, Team17 said it entered the second half “with significant traction across all parts of the business”, with two games launched of the seven new titles planned before year-end, along with 10 updates for its StoryToys arm, and mobile and console launches for new acquistion Astragon’s Bus Simulator and Police Simulation titles.
Meanwhile Keywords has continued to supplement its growth via a number of acquisitions with the third deal this year announced today of Smoking Gun Interactive.
Smoking Gun, is a game development studio based in Vancouver and has expertise in live operations, an area the group wants to focus on.
Further deals could follow with broker Peel Hunt saying it thinks Keywords is “well placed to benefit from favourable structural growth opportunities as demand for bigger and more content-rich games remains.”
It expects Keywords to retain a healthy balance sheet as it works towards its revenue target of €1bn.