Curtain Call
Ubisoft is struggling - again. What’s next for the iconic game company and why this may be the beginning of the end for Ubisoft as we know it.
La Grande Nation might lose one of its entertainment darlings soon. Ubisoft, the French video game developer and publisher and home to beloved franchises such as Assassin's Creed and Tom Clancy, has been in troubled waters for a few years now. Now that the company severely cut its revenue outlook for 2025 and the calls in the existing shareholder base for a sale of the company are becoming louder by the day, it seems like its days are numbered and that Ubisoft, founded in 1986, will not see its 40th birthday as an independent publicly traded company.
Let’s dig in.
Here are the main takeaways from Ubisoft’s announcement on Wednesday last week:
The company slashed its revenue forecast for its fiscal year 2025 by more than 18% to $2.16 billion, down from $2.66 billion.
The launch of Assassin’s Creed Shadows, Ubisoft’s upcoming AAA title in its iconic franchise, is delayed by another 3 months. The official launch date now is February 14, 2025.
Its other recent flagship title, Star Wars Outlaws, underperformed both on a meta critic review and revenue level.
Management initiated a strategic shift in business model and distribution immediately, getting rid of the traditional Season Pass model as well as making new games available on Valve’s Steam store on day 1.
Layoffs are likely, as Ubisoft CEO Yves Guillemot called for a review of the company’s execution, which is code for cutting costs.
All this sent Ubisoft shares to a 10-year low. It recovered minimally in the two days after the announcement and hovers around the EUR 10 mark, which is exactly where it ended last week and opened trading this week. This means the stock is down a hefty 57% this year alone, and 66% over the past 12 months.
To top it all off, Ubisoft workers went on strike today over the delayed game release and the company’s return to office mandate (when it rains, it pours).
Ubisoft CEO Yves Guillemot gave the following official statement as part of the announcement:
“Our second quarter performance fell short of our expectations, prompting us to address this swiftly and firmly, with an even greater focus on a player-centric, gameplay-first approach and an unwavering commitment to the long-term value of our brands. Although the tangible benefits of the Company’s transformation are taking longer than anticipated to materialize, we keep on our strategy, focusing on two key verticals – Open World Adventures and GaaS-native experiences – with the objective to drive growth, recurrence and robust free cash flow generation in our business.
In the light of recent challenges, we acknowledge the need for greater efficiency while delighting players. As a result, beyond the first important short-term actions undertaken, the Executive Committee, under the supervision of the Board of Directors, is launching a review aimed at further improving our execution, notably in this player-centric approach, and accelerating our strategic path towards a higher performing model to the benefit of our stakeholders and shareholders.”
This is very much in line with what you would expect the CEO of a publicly traded company to say, because the number one objective right now has to be damage control. At its current stock price, Ubisoft has a total market cap of roughly EUR 1.3 billion, which means it’s currently trading at a revenue multiple below 1, even with the trimmed forecast. Given the amount of red tape and politics internally between teams that are an open secret within the entire gaming industry, the mentioned measures won’t be implemented quickly or effectively enough.
Simply put: I believe Ubisoft will run out of time. Why? Because at the current valuation, it is a prime acquisition target due to its IP catalog and some undoubtedly impressive talent it boasts (its subsidiary Massive Entertainment comes to mind).
So here’s my prediction: Ubisoft will be acquired by another publicly traded company or taken private before the end of 2025 - and there are a number of players who must already be circling above the Parisian headquarters. Here are some of the leading contenders:
The revival
Nothing better than a French romance you say, and one that takes place in Paris? Well, you might be in for a real treat if French multimedia giant Vivendi makes a second run at acquiring Ubisoft. After previous attempts were shut down by the Ubisoft management in 2018, which resulted in Vivendi selling its entire 27.3% stake in Ubisoft at the time, Vivendi sold its shares for EUR 66 per share - way above Ubisoft’s current valuation. As a part of the deal, Vivendi had committed itself to not acquire any new shares in Ubisoft for at least 5 years. That clause is very likely to have expired now. Vivendi, who already owns Gameloft, would be able to realize some pretty significant synergies through combined Gameloft-Ubisoft operations under one Vivendi roof. At EUR 10.3 billion in market cap and EUR 10.5 billion in revenue, it’s 8 and 5 times bigger than Ubisoft on those metrics. With a little over EUR 1 billion in cash on its balance sheet, Vivendi would have to stretch a bit to make this happen, but a cash/stock combo that would give Ubisoft shareholders upside in the newly beefed up Vivendi could get this deal done. France’s entertainment darlings would also stay in the hands of La Grande Nation. Maybe it’s too romantic, but it’s an enticing avenue and we’ll almost want to cheer Vivendi on to do this. Allez les bleus!
The obvious one
Due to its EUR 300 million investment into Ubisoft in 2022, this gaming giant has been labeled by some reporters as the obvious candidate to come in and take over Ubisoft - Tencent. I don’t think it's outrageous to believe Tencent will be monitoring the situation closely. However, I don’t believe it’s a foregone conclusion either for a few reasons. First of all, the Wall Street Journal reported that as a part of its investment, Tencent only acquired a minority stake in the family holding without any board seats or veto rights. According to the same report, the Guillemot family (lead by CEO Yves) wields a powerful 13% stake and is by far the biggest shareholder. So whatever happens, Tencent doesn’t have an inside track. And then there’s the added attention any foreign direct investments and corporate takeovers receive these days. While the EU is a bit more laid back than its regulatory counterparts in the US, it did recently pass new legislation that significantly increases the disclosure requirements as well as the approval process for any deal that involves a foreign entity coming in. Tencent definitely has the cash to do this, but there are many other hurdles that need to be cleared.
The semi-obvious ones
The corporate development teams at most major video game companies must be scratching their heads right now, going: “Should we? What if [XYZ] does it?” We’re thinking of the likes of Electronic Arts, Take-Two Interactive, or Sony. During its most recent investor day, EA’s CFO Stuart Canfield publicly said that the company is evaluating acquisitions as a part of its ambitious growth targets. EA itself has always been subject to takeover rumors, so bulking up a bit by adding Ubisoft to its lineup would not only give them pretty complimentary IP to its portfolio, it would also deter a few potential suitors by making the company a bit more expensive. Then there’s Take-Two. CEO Strauss Zelnick has proven that he is not afraid to make bold bets, as evidenced by their USD 12.7 billion acquisition of Zynga a little over two years ago. Zelnick recently said that he doesn’t believe user-generated content as completely defining the future of his company. So maybe a more traditional AAA game company is just what he is looking for. And there’s Sony. You just have to think that after the failed attempt to block the Microsoft-Activision Blizzard deal, the folks at Sony are looking at every option possible to get back at Microsoft and strengthen its own portfolio. Sony did spend USD 3.6 billion to acquire Bungie in 2022, so a Ubisoft takeover would be right in the wheelhouse for Sony as it looks to bolster its lineup for the PlayStation.
Left field
Here are two candidates that are a little less obvious: Netflix and Meta. Netflix has over 80 new games in development and has shown no signs of slowing down its video gaming efforts. In fact, newly hired EVP of game development, Alain Tascan, was VP of Production at Ubisoft during his 30-year career. One has to imagine that he’ll know the right people to call to explore this, but the acquisitions Netflix has made so far on the gaming side of its business have been a lot smaller and more focused on development talent. If Netflix isn’t in it for the entire cake, they might be looking to grab a slice of the mobile development Ubisoft has (in case the company gets broken up into different pieces - see below in the private equity section). In the case of Meta, it all seems to depend on how great Zuckerberg’s obsession with the metaverse still is. What is very clear is that Meta lacks the development talent to build truly immersive experiences and open worlds that would represent an enticing user experience. This is in Ubisoft’s DNA. It has the talent, the expertise, and with some of its games already the blueprint and the assets to build these vast worlds. If Zuck is not too distracted by his latest set of AR glasses or his weird association with Caesar and the Roman Empire (I refuse to talk more about his fashion choices at this time), Meta might come out of left field and make a bid for Ubisoft.
A little more from left field
How about a little billionaire action? The recently merged Skydance Media and Paramount Global are definitely not the obvious candidate here. But: with David Ellison, the CEO of the new Paramount, and Larry Ellison (his father, Oracle CEO, and currently the second richest person in the world - in case you weren’t aware), a) money is not an issue and b) the ambition is to transform the new company into a “tech hybrid, [...] where content is king.” If Ellison’s vision is to truly cater to audiences through all consumer touch points and leverage the content it creates along the customer journey, adding Ubisoft to its portfolio would be very smart. One, it gives them the talent and expertise to build its own video games based on its stunning IP catalog (Top Gun, Mission Impossible, Star Trek - the list goes on). Two, they’d be able to acquire new IP as well that they can leverage beyond video games by bringing in their unique expertise in film and TV production. This would be cool to see, because let’s be honest: nobody needs Assassin’s Creed movies with IMDb scores of 5.6. Mr. Ellison - your turn.
The classic
A potential transaction of this kind always has one other route - Ubisoft could be taken private by a private equity firm. Our thoughts go immediately to Carlyle and CVC, who both have had positive experiences with investing in game developer / publisher Jagex. If a PE were to come into Ubisoft, it could be to revive the company as a whole. It could also be to streamline the business (this will happen either way with a PE firm) and refocus Ubisoft on its strength by selling off assets that are not considered core business. In this scenario, look for Ubisoft’s mobile games business to be on the proverbial chopping block first. It contributes just 6% to Ubisoft’s overall revenue and there is likely a number of suitors for specific assets only (see above: Netflix).
The next few months will be crucial in terms of Ubisoft’s future. If the launch of Assassin’s Creed Shadows mid-February next year doesn’t deliver the hoped for results, we need to expect Ubisoft’s stock price to take another hit and further accelerate the above scenario. Bonne chance, Ubisoft!