Ubisoft stock rallies on rumors of Tencent buyout
Ubisoft Entertainment (UBI) is roaring back to life with the game developer reportedly considering a buyout after laying off hundreds of staff and shuttering its flagship title.
In a sharp reversal, Ubisoft stock surged nearly 15% in the past week on the back of buyout rumors involving China’s tech giant Tencent.
Year-to-date, Ubisoft’s share price has plunged 42%, bringing its total market capitalization to just $1.75 billion. That’s a fraction of the $13.1 billion capitalization it enjoyed in early 2021 when its share price was north of $80.
Ubisoft made headlines earlier this month when it announced that its XDefiant first-person shooter would be canceled in the new year. The developer had high hopes for the title, which had accumulated 11 million players in its first month.
The decision prompted a major restructuring at the company, resulting in nearly 300 staff layoffs in Ubisoft’s San Francisco and Osaka offices.
Ubisoft’s struggles have prompted the company’s shareholders to consider a buyout, possibly involving Tencent, according to sources familiar with the matter, as reported by Reuters.
The Chinese tech giant behind WeChat and QQ already owns 10% of UBI stock, making it the company’s second-largest shareholder.
Ubisoft’s financial woes aren’t new. Even with a buyout, the game developer has a lot of work to do to rehabilitate its image and get business back on track.
The rise (and fall) of Ubisoft
After two decades of growth on the back of popular titles like Assassin’s Creed and Rainbow Six, Ubisoft has struggled since the pandemic.
Critics say this is due to a series of self-inflicted wounds, including abandoning a single-player model for open-player environments and focusing on casual gamers instead of its core audience.
This has led to watered-down sequels of popular games and new titles that never really gained traction.
For its 2022-2023 fiscal year, Ubisoft reported a net loss of nearly 495 million euros (nearly $523 million in current dollars). Sales and net bookings also plunged—a trend that would bleed into 2024.
In the first half of this year, Ubisoft reported that its sales plunged 19.6% to 671 million euros ($710 million). Net bookings were down 21.9% to 642.3 million ($670 million).
The disappointing results forced Ubisoft to lower its sales and net booking forecasts for the year.
According to gaming industry analyst Joost van Dreunen, Ubisoft may not be able to sustain these losses for much longer. In a recent newsletter, van Dreunen predicted that the company is “headed for privatization and dismantling in 2025.”
While JPMorgan analysts Daniel Kerven and David W Peat weren’t nearly as critical, they said mid-sized developers like Ubisoft “continue to be squeezed by development cost inflation,” which has forced the company to cut costs.