Could Ubisoft be the next major video game publisher merger?

Key Points

• Ubisoft is a major videogame publisher with iconic franchises that include Assassin’s Creed, The Crew, Just Dance, Rainbow Six and Far Cry.
• Consolidation in the industry, as evidenced by Microsoft's acquisition of Activision Blizzard, could bring Ubisoft into the crosshairs of larger players.
• Ubisoft saw net bookings rise 36.6% in fiscal Q2 2024, driven by the success of Assassin's Creed Mirage and The Crew Motorfest titles.

Ubisoft Entertainment SA OTCMKTS: UBSFY is a video game publisher and developer headquartered in France. The computer and technology sector company is well-known for its popular iconic video game series like Assassin's Creed, Ghost Recon, Just Dance, The Crew, Rainbow Six and Far Cry. 

Microsoft Co. NASDAQ: MSFT acquisition of Activision Blizzard Inc. NASDAQ: ATVI has led to speculation about further consolidation in the video game industry, especially publishers for video game consoles like the Sony Co. NYSE: SONY PlayStation and Microsoft Xbox series.  

Iconic videogame franchises 

Ubisoft revolutionized the stealth gameplay genre with its early Assassin's Creed titles as users guide the characters stealthily through assassination missions. While the company has released iconic titles, it's also received a fair share of criticism about its monetization tactics, including in-game microtransactions and loot boxes.

2024 earnings 

On October 26, 2023, Ubisoft released its fiscal first-half 2024 earnings results. The company reported net bookings growth of 17% year-over-year (YOY) to $902.3 million. Digital revenues rose 12% YOY, and 87% of total net bookings were $787 million. The second-quarter net booking grew 36.6% YOY to $609 million, driven by stronger-than-expected revenues from back-catalog, overperformance and monetization through partnerships. The Crew Motorfest and Assassin's Creed Mirage pre-shipments were strong.

Acquired Activision Blizzard cloud streaming rights 

Ubisoft also finalized the acquisition of Activision Blizzard cloud streaming rights. This gives Ubisoft the perpetual cloud streaming rights for Call of Duty and all other existing Activision Blizzard Console and PC titles and those releasing over the next 15 years. This will further strengthen the offerings on its Ubisoft+ subscription service, allowing them to license them to third parties.

Highlights of Q2 activity 

Under new releases, Assassin's Creed Mirage was lauded, continuing to build on its 15-year-old franchise. The game returned to its roots of stealth and parkour gameplay. While the game was released on October 5, 2023, pre-orders were booked in Q2. 

The Crew Motorfest was the highest-rated title in the series. For back-catalog, first-person shooter Rainbow Six Siege has high double-digit net bookings. First-half net bookings grew 51% YOY. Casual mobile business titles Idle Bank Tycoon and Idle Miner Tycoon performed well as overall engagement was up significantly YOY, reaching near-record levels.

Cost reduction plan on target

Under its cost reduction plan, Ubisoft proposed consolidating the Hungry Shark franchise at the Ubisoft Barcelona Mobile studio while closing the Ubisoft London studio. 

The company has reduced worldwide headcounts to 19,410 employees, down from 20,779 employees in the year-ago period. The cost reduction plan is on track with a first-half fiscal 2024 fixed cost base of around $878 million, down 7% YOY or a decrease of $71.3 million.

Financial outlook

For the fiscal third quarter of 2024, Ubisoft's net bookings are forecast at around $669.5 million. The fiscal full-year 2024 operating income is expected to be around $439 million. The company will release Avatar: Frontiers of Pandora, Just Dance 2024 edition, Prince of Persia: The Lost Crown and the long-awaited and delayed Skull and Bones pirate games.

CEO insights 

Ubisoft Co-Founders and CEO Yves Guillemot commented on the significance of the Activision Blizzard cloud gaming rights acquisition, “The cloud gaming market has a strong potential, and Ubisoft can play a leading role in its realization. This deal will enable us to deliver even more experiences to more players worldwide than ever before, one of the cornerstones of our strategy.” 

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Daily market structure low (MSL) 

The candlestick chart on UBSFY illustrates the formation of a market structure low (MSL) breakout above the trigger at $5.09. Shares fell from a peak of $6.57 on November 21, and proceeded to sell off for 13 days, falling below its daily 200-period moving average support at $5.69 to a low of $4.94 on December 12.