Ubisoft Investors Is In Full Panic

Things for Ubisoft just keep getting worse. After many poor video game launches, investors are losing faith in the company. Over the last five days, Ubisoft stock has dropped 22.94% and is currently sitting at 11.69 EUR. Sadly, things are not about to get any better for the company anytime some. The truth is that Ubisoft has been on a downward spiral for many years. What used to be a symbol of quality and entertainment is now nothing more than a reminder of what was.

Over the last five years, the company’s stock has lost 83.90% of its value. Thus, the obvious question will be why? To understand the loss in revenue and stock value, we need to understand the quality of games. Over the last five years, they have released 63 games. It is an insane list, and I was shocked when I saw that stat. Now, to be fair, not all of these releases are Triple-A. Some of the most notable big releases include Far Cry 6, Assassins Creed Mirage, Assassins Creed Valhalla, Skull and Bones, Prince of Persia: The Lost Crown, Tom Clancy’s Rainbow Six Extraction, and Star Wars Outlaws.

Far Cry 6 can be considered a commercial success, selling over 10 million copies. Assassins Creed Valhalla did even better, selling 15 million units. Tom Clancy’s Rainbow Six Extraction also enjoyed a fair bit of success, selling 5 million units. Assassins Creed Mirage also enjoyed some level of success, accumulating 5 million players. Skull and Bones, Prince of Persia, and Star Wars Outlaws, unfortunately, did much worse. Since most of these releases came out this year, most of the focus is on recent failures instead of previous successes.

The Ubifost Profit Margin

In total, Ubisoft has sold about 35 to 40 million triple-A games in the past five years. This is an impressive number, but it does not come close to the other mobile sales that also need to be counted. Now, it is worth mentioning that the budget for these titles is also huge. Thus, the margin for failure is not high. You can have their consecutive great releases, and it only takes one or two failures for you to be in the red. That is the risk of single-player big-budget games. That is why many companies now want to get into live service instead.

As per the numbers that Statista provides, “In the fiscal year 2023-24, which ended in March 2024, Ubisoft generated 2.3 billion euros in sales. In the most recently reported year, approximately 85 percent of Ubisoft’s sales were attributed to the digital format, amounting to approximately 1.99 billion euros. Overall, the North American market accounts for the biggest share of revenue.” In many ways, this was one of their best years ever. So the question becomes, if their sales are this high, why are investors panicking this much? The answer comes down to consumer trust. While sales are high, the public no longer trusts them.

Based on stock prices, neither do the investors. Since these large companies only serve their investors and not the games, this devastates them. If your revenue is high but the perception from the public is that you do not know what you are doing, things won’t end well for you.

A Ten-Year Low For Ubisoft.

Gaming Industry states, “Ubisoft’s stocks have taken a hit following the release of Star Wars Outlaws, having fallen by more than 10% in two days.” This goes back to what I said about perception. It does not matter how well your sales look. You will lose market share if the public thinks you are doing poorly. It only takes one or two poor releases. All this resulted in minority shareholders writing an open letter calling for the removal of the CEO.

In their letter they mention, “Ubisoft’s cost structure and staffing levels are not aligned with its
peers in the industry in our view which causes significantly higher fixed costs than peers.
Companies such as Electronic Arts (EA), Take-Two Interactive, and Activision Blizzard
have much higher revenues and profitability with lower staff and studio talent. Despite
having fewer blockbuster titles, Ubisoft employs over 17,000 staff compared to EA’s 11,000,
Take-Two’s 7,500, and Activision Blizzard’s 9,500.

In terms of financial performance, for the fiscal year 2023, EA reported revenues of approximately $7.43 billion with a net profit of $1.58 billion, Take-Two Interactive reported revenues of $5.35 billion with a net profit of $930 million, and Activision Blizzard, before its acquisition by Microsoft, reported revenues of $8.8 billion with a net profit of $2.2 billion. In contrast, Ubisoft reported revenues of $2.4 billion with a net loss of $60 million. The company needs to implement significant cost reductions and staff optimization to improve operational efficiency. We also suggest that Ubisoft should consider selling certain studios that are not needed for development of main IP’s in the portfolio. Ubisoft has over 30 studios, it’s obvious to every investor that this structure is too large for Ubisoft and its profitability going forward.”

The Ubisoft Revenue Problem

This goes back to what I have mentioned before. The company is making more money than ever. However, that is only in revenue. While their sales are not as bad as people might think, their overhead is insanely high. These massive titles cost hundreds of millions, and they are not making money back. Thus, despite high revenue, they are still in the red and losing money. Now, the conclusion to this should not be more live service games. It is a higher-quality output. For one, you do not need to have such a high budget for a video game. Secondly, if you do not release your titles in such a poor state every year, it will also go a long way in assisting you.

When Ubisoft wants to, they can still be a great developer. They are responsible for some of the best titles out there. However, the directional shift of this company could see them sink to even lower lows. This is something that the open letter also highlights. Under their concerns, they highlight the strategic direction when they write, “The current strategic direction under the Guillemot family’s leadership has led to repeated delays and missed opportunities, which have resulted in significant financial underperformance. Share price of Ubisoft have decreased by more than 40% over the last year. We suggest that Ubisoft allow shareholders to vote for new CEO and allow sale of the business to PE group or let the Guillemot-led consortium to buy-out minorities for fair price.”

Conclusion

Over the last few years, a lot has also been said about DEI. In fact both Star Wars Outlaws and Assissans Creed Shadows are being accused of doing this. While this has played a role in the recent poor sales, I do not believe it is the main issue for Ubisoft. It is not the DEI in their games But rather the DNA of the games that is resulting in poor sales. The truth is many of their games are simply not fun to play. The mechanics are outdated, and the stories are boring. I do not think that Ubisoft will go anywhere anytime soon. However, they also cannot afford to keep losing 60 million a year. Star Wars Outlaws is already a disaster for them. In fact, they just decreased their sales prediction by two million.

Assassins Creed Shadows will likely run into the same disappointment. The next few years for Ubisoft will be interesting to observe. While I want to be hopeful that the company will learn the correct lessons from this, I have a feeling they will not.