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On Friday, Benchmark analysts maintained their Hold rating on shares of Ubisoft Entertainment SA (LON:0NVL) (UBI:FP) (OTC: UBSFY (OTC:UBSFY)), following the company’s announcement of a significant operational change. According to InvestingPro data, the company’s stock has shown resilience with a 37% gain over the past six months, despite currently trading below its Fair Value. The company maintains impressive gross profit margins of 90% and strong liquidity, with current assets more than double its short-term obligations. Ubisoft (EPA:UBIP) revealed plans to form a new subsidiary dedicated to its top franchises, including Assassin’s Creed, Far Cry, and Tom Clancy’s Rainbow Six. This move is part of a broader transformation aimed at refining the company’s focus and accelerating its transition to a more nimble and concentrated organization.
The establishment of the subsidiary is expected to enhance Ubisoft’s ability to develop persistent, multi-platform gaming ecosystems. The focus will be on a variety of gaming experiences, such as multiplayer support, single-player narratives, social features, and free-to-play (F2P) models. This strategic pivot is designed to leverage and maximize the value from Ubisoft’s most successful intellectual properties.
Tencent Holdings Ltd (HK:0700) (F:NNND). has agreed to invest approximately €1.16 billion for a minority stake in this newly formed entity. This investment values the subsidiary at a pre-money enterprise value of around €4 billion, or four times the projected sales for fiscal years 2023 to 2025. The collaboration with Tencent is seen as a key component in supporting Ubisoft’s ambitions for its flagship franchises. With a substantial free cash flow of $666 million in the last twelve months, Ubisoft demonstrates strong cash generation capabilities despite current profitability challenges. (InvestingPro subscribers can access 8 additional key insights about Ubisoft’s financial health.)
The new subsidiary’s focus on evergreen game titles is indicative of Ubisoft’s intent to ensure the longevity and ongoing relevance of its key franchises. By emphasizing multi-platform support and free-to-play models, the company aims to attract a broader audience and foster deeper engagement with its games.
Ubisoft’s strategic realignment through the creation of this subsidiary represents a deliberate effort to streamline its operations. The company is looking to align its internal resources more effectively and capitalize on the strong brand equity of its main franchises. This development is reflective of the broader industry trend towards games as service models and the continuous evolution of gaming experiences. Looking ahead, InvestingPro analysis indicates anticipated sales challenges, with analysts forecasting a 17% revenue decline for the current fiscal year. The company’s unique market position is highlighted by its negative beta of -0.19, suggesting it often moves counter to broader market trends.
In other recent news, Ubisoft Entertainment SA has maintained a Hold rating from TD Cowen analysts, who have adjusted their price target from EUR15.00 to EUR14.00. This revision comes in light of Ubisoft’s latest announcement regarding strategic options and the postponement of its game "Assassin’s Creed: Shadows" to March 20, along with a decrease in its bookings guidance for the fiscal third quarter. Analysts at TD Cowen have expressed skepticism about any significant changes in Ubisoft’s situation, noting that potential buyers have had opportunities to engage with the company over the years. They also noted that any acquisition might favor the Guillemot family, the founders of Ubisoft, over external shareholders. Operational challenges are expected to continue, as analysts pointed out minimal changes in management despite layoffs. Consequently, TD Cowen has lowered its financial estimates, adjusting the fiscal year 2025 bookings forecast from €1.95 billion to €1.89 billion and changing the EBIT projection from a €3 million loss to a €16 million loss. The revised price target reflects a 10x multiple on the firm’s estimated FY27 EBITDA, which is lower than those of other video game companies. This valuation is based on concerns about Ubisoft’s management’s ability to improve the company’s performance.
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