French video game publisher Ubisoft Entertainment (OTC:UBSFF, EPA:UBI) has delivered a mid Star Wars game worthy of its mid investment thesis.
In less contemporary parlance, Ubisoft’s latest AAA title, the open world adventure game Star Wars Outlaws, has been met with average reviews that are unlikely to instigate a repricing on the developer’s shares.
Outlaws is “perfectly fine” according to The Verge; what it “lacks in innovation, it makes up for in fan service”. For GameSpot it missed the mark. Another called it a “perfectly ok bit of star war”. Eurogamer said its “stripped-back Ubisoft formula is admirable yet doomed”.
These reviews for Ubisoft’s latest piece of creative output reflect the board’s recent business choices.
Ubisoft has doubled down on two main types of gaming experiences- open world (the category which Outlaws falls into) and the oft-maligned yet nonetheless lucrative live service model.
Both of these gaming experiences are extremely saturated, especially among Ubisoft’s catalogue. A more diplomatic take is they are safe, tried and tested. Not too dissimilar to the Outlaws reviews then.
But as reported in May, it hasn’t been smooth sailing for Ubisoft, despite playing it safe.
Per an annual statement, total revenues came to €1.74 billion, down 18.1% year-on-year, with net losses amounting to €494 million compared to a profit of €103 million in the previous year.
For UBS analysts, Ubisoft’s risk-reward profile “remains skewed to the downside”.
“In January 2023, Ubisoft outlined a shift in strategic direction, whereby it would effectively consolidate its resources and focus on producing a smaller number of larger, higher quality games,” said UBS.
“We see the FY25 release slate as a key test of this approach. While Star Wars Outlaws has received ‘generally favourable’ reviews… it comes broadly in line with the scores for prior Ubisoft releases.
“While this gives us confidence in underwriting our forecasts of 10 million units sold for the game in FY25, we do not see this as evidence of a paradigm shift in product quality, or as vindication for the renewed strategy.”
Ubisoft also has a balance sheet problem, specifically that it doesn’t always generate free cash flow (only five times in the past 11 years).
“Beyond FY25, it is unclear what the drivers are for a substantial improvement in FCF generation, and we note there €1.4 billion of borrowings that fall due between FY25 and FY28, with only €1.2 billion of cash on the balance sheet at the end of FY24,” noted analysts.
While Ubisoft shares might be worth a little more than one-half credit, they’re still a sell at €17.3, with a 12-month price target of €16.