Ubisoft (UBI) Tanks Stock 21% After Steering Cut, Games Canceled

In this photo illustration, the logo of video game company Ubisoft is shown on a smartphone.

Igor Golovnyov | SOPA Pictures | LightRocket via Getty Images

Ubisoft Shares fell 21% on Thursday after the French video game maker cut revenue guidance, canceled three titles, and pushed back the release of its next game, Skull and Bones.

The company’s share price fell to 18.80 euros per share shortly after the market opened, marking its lowest level in more than seven years. The stock has since trimmed losses slightly and was last trading at around €20, down 16% from Wednesday’s close.

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In a trading update on Wednesday, Ubisoft cut its net booking guidance for the third quarter of 2022 to €725m, down from a previous target of €830m. The company expects net bookings for the full year to fall 10% after a previous forecast called for a 10% increase.

The company, best known as the publisher of hit franchises including Assassin’s Creed and Far Cry, cited the poor performance of its titles Mario + Rabbids Sparks of Hope and Just Dance 2023, as well as the difficult economic environment.

“There’s a fair amount of ‘door slamming’ going on globally as it relates to the gaming industry,” Lewis Ward, IDC’s director of gaming research, told CNBC.

“There were huge increases in revenue of between 20 and 30% when the coronavirus hit, and in 2023 we are dealing with the continued epilogue of higher spending caused by the coronavirus, as well as concerns about a potential recession and ongoing challenges to inflation and the supply chain in North America and Europe especially, in addition to To the ongoing fallout from the Russian invasion of Ukraine.”

Consumers reduce their discretionary purchases in response to rising prices and borrowing costs. Games have come under particular pressure. The industry was expected to contract 4.4% year over year to $182 billion, according to a November forecast from market research firm Ampere Analysis.

Ubisoft is the third gaming company this week to release a disappointing trading update. Devolver Digital and Frontier Developments posted earnings warnings on Monday, citing a weak trading environment in December.

“This reveals that the macroeconomic environment has an impact on premium game sales to some extent,” Pierce Harding-Rolls, director of research for games at Ampere Analysis, told CNBC via email.

“However, I think the economic backdrop is more likely to affect some companies than others,” he added. For example, we’ve already noticed how well the biggest AAA console releases have sold – FIFA, God of War, CoD [Call of Duty] – Therefore, I think it is too early to assume that all major publishers will be in the same position as these three companies.

The gaming industry is experiencing increasing consolidation, incl Microsoft Huge acquisition of Call of Duty publisher Activision Blizzard and Sony’s purchase of Destiny developer Bungie. Analysts see Ubisoft as a potential acquisition target. Its share price fell more than 38% in 2022, wiping €3 billion off the company’s market value.

In September, Tencent raised its stake in the company in a deal that made Chinese tech giant Ubisoft Ubisoft’s largest shareholder. The purchase gave Tencent a total stake of 11%, including indirect ownership, and an option to increase its interest to 17%.

Analysts said at the time that the stake purchase dampened hopes of a takeover. As part of the deal, Tencent will not be able to sell its shares for five years and cannot increase its direct stake in Ubisoft beyond 9.99% for eight years.

Ubisoft said Wednesday that it will cut €500 million in capitalized research and development and narrow its focus on fewer titles. It has shelved three unannounced game projects and delayed the release of its upcoming pirate game, Skull and Bones, until early 2023 to 2024.

The company hopes to cut costs by about 200 million euros through a combination of targeted restructuring, divestment of “non-core” assets and staff attrition. It has about €1.4 billion of cash and non-cash equivalents on its balance sheet.

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