Ubisoft ( UBI ) shares fall 21% after guidance cut, games cancelled

Ubisoft ( UBI ) shares fall 21% after guidance cut, games cancelled

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

Igor Golovnev | SOPA Images | LightRocket via Getty Images

Ubisoft shares fell 21% on Thursday after the French video game maker cut revenue guidance, canceled three titles and delayed the release of its upcoming Skull and Bones game.

The company’s share price fell to €18.80 a piece shortly after the market opened, hitting its lowest level in more than seven years. The shares have pared losses slightly since then and were last trading at around €20, down 16% from Wednesday’s close.

In a trading update on Wednesday, Ubisoft cut guidance for net bookings 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 were likely to decline 10%, after an earlier forecast had 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 Mario + Rabbids titles Sparks of Hope and Just Dance 2023, as well as a challenging economic environment.

“There’s a lot of hatch-covering going on globally when it comes to the games industry,” Lewis Ward, research director of games at IDC, told CNBC.

“There were huge revenue jumps of 20-30% when COVID hit, and in 2023 we face the ongoing unwinding of the COVID-induced spending spike, plus concerns about a potential recession and continued inflation and supply chain challenges in North America and Europe especially plus, of course, the ongoing fallout from Russia’s invasion of Ukraine.”

Consumers are reducing discretionary purchases in response to higher prices and borrowing costs. Games are especially pressured. The industry was expected to shrink 4.4 percent year over year to $182 billion, according to a November forecast by market research firm Ampere Analysis.

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

“This reveals that the macroeconomic environment is impacting premium game sales to some extent,” Piers Harding-Rawls, director of gaming research at Ampere Analysis, told CNBC via email.

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

Seeing the gaming industry increased consolidationinclusive of Microsoft mega acquisition of Call of Duty publisher Activision Blizzard and Sony’s purchase of Destiny developer Bungie. Analysts view Ubisoft as the potential takeover target. Its share price sank more than 38% in 2022, wiping €3 billion from the company’s market value.

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

Analysts at the time said the stake purchase dampened takeover hopes. 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 a period of eight years.

Ubisoft said on Wednesday it will write off about 500 million euros in capitalized research and development and narrow its focus to fewer titles. It postponed three unannounced game projects and pushed back the release of the upcoming pirate game Skull and Bones to sometime between early 2023 and 2024.

The company hopes to cut costs by around 200 million euros through a combination of targeted restructuring, the sale of “non-core” assets and employee outflows. It has around €1.4 billion in cash and non-cash equivalents on its balance sheet.

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