Ubisoft Stock

On January 11, 2023 Ubisoft announced it is lowering its revenue target for the third quarter FY 23 ending 12/31/22.  The initial target of €830 million has been lowered to €725 million.  The company also announced a new strategic focus that included the cancellation of three unannounced projects and another delay for Skull and Bones.

Analysis

It is no secret that Ubisoft (UBI.PA) has been a mess for the past few years.  Ubisoft now has a market value well under $3 billion.  After fighting off several acquisition attempts (most notably by media conglomerate Vivendi) reports are Ubisoft is looking to be acquired but struggling to find an interested buyer.

The problems with Ubisoft are not new and have been issues for years.  Most notable is the extremely high development overhead from the company’s internal studios.  Ubisoft has 21,000 employees versus 9,800 for Activision Blizzard (Microsoft is looking to buy ATVI for $69 billion) and 12,900 for Electronic Arts (EA’s market value is about $35 billion).

Over the years, Ubisoft has kept its employees busy by throwing all kinds of products into the market hoping something sticks.  The goal of the new strategy is to focus on building strong brands and live services.  Basically, Ubisoft is looking to do what a company like Electronic Arts has already done.  Trim the product line and generate ongoing revenue via a live services model.  The problem is it may be too late.

Another major problem has been continued product delays as the company tries to focus on product quality.  The most recent announcement was another delay for Skull and Bones which was initially set for launch in 2018!

One sign of concern is that one of the reasons for lowering the forecast was poorer than expected performance for Mario + Rabbids Sparks of Hope.  The Switch game not only received strong reviews but it had tie-ins with the Nintendo IP.  Arguably this is not a failure on the development side but a marketing issue.  

The news gets even worse as Kotaku reports Ubisoft CEO Yves Guillemot has issued an apology for a statement he sent to staff at the time of the January 11 announcement.  Reportedly Guillemot told employees the ball was in their court to fix problems.  For those interested in learning the drama and problems of recent years the Kotaku article provides a nice summary.

Despite all these issues, Ubisoft is still an initial stock in the DFC Intelligence Video Game Stock Portfolio.  The thinking is that the raw value of Ubisoft IP is more than the market valuation and the company or its assets could be acquired for a premium.  However, there is no doubt things are a mess at Ubisoft.

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