(News Bulletin 247) – The video game publisher has published its annual results, drawing a line under a vintage to be forgotten. But the new fiscal year, with plenty of big releases planned in the face of intense competition, still carries risks.

There was not much to hope for from the results of Ubisoft’s 2022-2023 fiscal year, which ended last March. The video game publisher had clearly announced the color in January by issuing a heavy profit warning.

The operational loss in non-IFRS data, of 500 million euros, is also found to be exactly in line with the indications provided by the group controlled by the Guillemot family. It should be noted, however, that “net bookings” – the company’s preferred indicator in terms of revenue and which excludes certain deferred revenue – finally fell by 18% over the whole of the year to 1.74 billion euros, while analysts had expected a much higher figure of 1.89 billion euros, according to UBS.

In addition, Ubisoft burned cash: free cash flow was negative at 425.8 million euros after 282 million euros in the previous financial year. “It’s a big ‘cash burn'”, notes an analyst.

No triple A in the first quarter?

Another negative point: the indication of activity given for the first quarter of the current financial year. For this period from April to June, Ubisoft has announced that it anticipates “net bookings” of 240 million euros (compared to 293 million euros a year earlier). UBS bank points out that this is the lowest level since the first quarter of 2018.

“The net booking target of 240 million euros for the first quarter of the current financial year is lower than the consensus anticipated. Above all, this indication suggests that a AAA game exit is unlikely in the first To this is added the uncertainty about the release date of the flagship game Skull and Bones, repeatedly postponed and expected for the first part of the 2023-2024 financial year”, underlines Valentin Mory, analyst at the office of AlphaValue independent studies.

In response to these announcements, Ubisoft shares fell 4% around 10:40 a.m. on the Paris Stock Exchange, posting one of the largest drops in the SBF 120, after opening with a fall of more than 8%.

Lots of outings against intense competition

Admittedly, Ubisoft intends to raise the bar and it must be recognized that the French company has already returned from the devil vauvert in the past. The video game publisher had for example succeeded in repelling the attacks of Vivendi and Vincent Bolloré, which is no small feat.

Thus, Ubisoft has confirmed that it wants to generate non-IFRS operating profit again in the green for the 2023-2024 financial year, at around 400 million euros. But the task promises to be difficult for the group.

“It may be ambitious,” points out the previously quoted anonymous analyst. According to UBS, the research departments are proving to be cautious, since the consensus currently expects an operating result of 363 million euros for 2023-2024, quite far from the objective of the company.

“The 2023-24 objectives confirmed last night will require a very strong second quarter and especially a third quarter. They are therefore subject to the commercial risk on the games to be launched this year (and the absence of new delays) “, underlines for its part Invest Securities.

With the delays in the games that should have happened during the previous financial year, Ubisoft will offer no less than seven games in 2023-2024, including five big blockbusters, including “Skull and Bones”, the game “Avatar: Frontier of Pandora”, drawn from James Cameron’s film franchise, or even the new Assassin’s Creed. The group will organize a “Ubisoft Forward” event on June 12 where it should give more indications on the release dates.

Quite a catalog to come as, as UBS points out, macroeconomic conditions deteriorate.

“Ubisoft is betting on five major game releases for this financial year. Already there is always a risk of cannibalization between the publisher’s games. Then, if Ubisoft has a very extensive catalog of releases, this is also the case for its competitors. , who have also postponed outings”, explains Valentin Mory for his part. “The competition promises to be intense, especially in an inflationary context where players are much more selective and demanding in their spending and their choice of games,” he adds.

A fading speculative character

For its part, TP ICAP Midcap wants to be optimistic and has confirmed its buying opinion.

“At current valuation levels, the risk reward [le couple risque-rendement, NDLR] always seems very positive to us. Many games will arrive over the next two financial years and at the same time the group will accelerate its cost reduction program”, argues the design office. “AI could be an accelerator on this point, the group having historically always been present during technological developments in its sector”, adds TP ICAP Midcap.

Credit Suisse, for its part, lowered its target to 35 euros against 40 euros but maintained its recommendation of “outperformance”. The Swiss bank sees opportunities for the company to transform into “a more focused, more successful and more profitable company in the long term”.

It will obviously be better for Ubisoft that the execution of its releases is carried out without a hitch and that its games enjoy good reception. Because beyond its fundamentals, the action has lost most of its speculative character since September 2022 and the entry of the Chinese group Tencent into the concert formed by the Guillemot family.

The latter has an extremely powerful ally (Tencent weighs nearly 390 billion euros on the stock market, not far from LVMH), which should ward off predators. And therefore a potential takeover bid.