Ubisoft Shares Plunge to Seven-Year Low Following Guidance Cut and Cancelled Games

Ubisoft's shares plunged 21% on Thursday after the company reduced its revenue guidance, cancelled three titles, and pushed back the release of its upcoming Skull and Bones game.
The company's share price took a sharp dive shortly after the market opened, hitting its lowest level in more than seven years. The stock has since recovered slightly, but is still down 16% from its Wednesday close.
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In a trading update on Wednesday, Ubisoft lowered net bookings guidance for the third quarter of 2022 to 725 million euros, down from an earlier target of 830 million euros. The company forecast full-year net bookings would likely fall 10% after an earlier projection called for an increase of 10%.
The company, which is best known for its hit franchises including Assassin’s Creed and Far Cry, has cited poor performance of its Mario + Rabbids Sparks of Hope and Just Dance 2023 titles, as well as a challenging economic environment.
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According to Lewis Ward, research director of gaming at IDC, there is a significant amount of preparation taking place in the games industry in response to global conditions.
There was a huge surge in revenue when COVID hit, and in 2023 we're dealing with the aftermath of the COVID-induced spending spike, plus concerns about a potential recession and ongoing inflationary and supply chain challenges in North America and Europe. Plus, of course, the ongoing fallout of Russia's invasion of Ukraine.
As prices and borrowing costs rise, consumers are cutting back on discretionary purchases. Gaming is one industry that has come under pressure, with market research firm Ampere Analysis predicting a 4.4% year-on-year contraction to $182 billion in November.
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Ubisoft has become the third gaming company this week to issue a disappointing trading update. Devolver Digital and Frontier Developments both posted profit warnings on Monday, citing a weak trading environment in December.
Piers Harding-Rolls, research director for games at Ampere Analysis, told CNBC that the macro-economic environment is having an impact on premium games sales. He said that this is evident from the sales figures.
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However, I think it is likely that the economic backdrop will impact some companies more than others. For example, we’ve already noted how the biggest AAA console releases have sold well — FIFA, God of War, CoD [Call of Duty] — so I think it’s too early to assume all major publishers will be in the same position as these three companies.
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The gaming industry is seeing increased consolidation, with Microsoft acquiring Call of Duty publisher Activision Blizzard and Sony purchasing Destiny developer Bungie. Analysts view Ubisoft as a potential takeover target. Its share price sank more than 38% in 2022, wiping out 3 billion euros from the company's market value.
In September, Tencent increased its stake in Ubisoft, becoming the company's largest shareholder. The purchase gave Tencent an overall stake of 11%, including indirect ownership, and an option to increase its interest further to up to 17%.
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At the time of the stake purchase, analysts said that it had dampened hopes of a takeover. As part of the deal, Tencent won’t be able to sell its shares for five years and can’t increase its direct stake in Ubisoft beyond 9.99% for a period of eight years.
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Ubisoft announced Wednesday that it would depreciate around 500 million euros of capitalized research and development, and would focus on fewer titles. The company shelved three unannounced game projects, and delayed the release of its upcoming Skull and Bones pirate game until a period between early 2023 and 2024.
The company is hoping to reduce costs by approximately 200 million euros through a combination of targeted restructuring, divestment of non-core assets, and employee attrition. It has approximately 1.4 billion euros of cash and non-cash equivalents on its balance sheet.