Ubisoft after the results

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darrens's picture
Volumes very, very thin on

Volumes very, very thin on the warrants but it's almost at the point now (warrants at €.027 and shares at €5.1) that I'd be more tempted to grab some shares rather than warrants.

GRFS seems to have reasonable legs, albeit in a market which is down 30%, but I do feel it's doing at least as well as Ubisoft would have expected. Catalogue will obviously

Results on Thursday and I'm expecting them to be pretty much in line with forecast on the assumption that the softness in the overall market was already factored into their forecasts.

tsanalysis's picture
I still like Ubisoft here

I still like Ubisoft here (shares or warrants):

- Ghost Recon was #2 in June NPD. Not enough information leaked to nail down units, but we know it was less than 450,000. My guess would be around 300,000 which along with May's total would put it at around 700,000 sold through in NA. So maybe 1.4-1.5 million worldwide so far. The first DLC pack was announced for July so that should help the September quarter.

- June quarter revenue guidance seems safe based on above and models we have discussed before. I have not seen heavy discounting of GRFS yet (at least in the US) so 2 million ship-in seems safe.

- There was a posting at an official Rockstar blog the other day with a few new screenshots of GTA V and a comment that they would not be in a position to show more for awhile yet. Thus the likelihood of GTA V launching this year, much less in ACIII's window, has gone down in my mind. With this holiday's slate already looking weaker than last holiday's that could allow the big titles that are releasing this holiday (namely Black Ops II, Halo 4, and ACIII) to do that much better. I especially like ACIII's release date this year, two weeks earlier than normal. October 30th positions ACIII as the first mega blockbuster of the season, one week ahead of Halo 4 and two weeks ahead of CoD (for a change). Medal of Honor, Need for Speed, and Forza Horizons release the week before ACIII, but I do not think they are much of a concern. In fact I think the only game releasing before ACIII which is worth a mention is Borderlands 2, and it releases a full six weeks before ACIII. So I think things could not have gone much better with ACIII's release date.

- Ubisoft announced another dance title for the December quarter, The Hip Hop Experience. Together with Just Dance 4 and Just Dance Disney Party perhaps that can keep the decline in the dance genre to a minimum.

On the somewhat questionable side:

- Ubisoft announced Spartacus Legends (based on the TV series) for XBLA/PSN. Like their other game based on The Expendables 2 movie, I don't see the point even if it is just an XBLA/PSN title. I guess Ubisoft wouldn't be Ubisoft if they didn't release at least a few titles which make you scratch your head.

- Ubisoft seems intent on pushing full steam ahead on making an Assassin's Creed movie and funding it themselves. I kind of thought the idea would just go away but hopefully they are a ways from production still so it won't start to impact the bottom line yet.

But overall I am still positive on Ubisoft. Bottom line I think both the June and September quarters are safe relative to guidance and that things still look on track for ACIII to do really well this holiday.

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darrens's picture
Pretty much agree with all

Pretty much agree with all that. I'm still not overly concerned with the Dance titles apart from JD4 and I don't really expect all the other titles to do much so I'm not overly concerned about them either way.

I often think all the XBLA/PSN stuff is just about giving their internal studios something to do. Having said that, they've been at these low budget, digital only games for a little while now (From Dust, etc) so presumably they are worth doing in some small way.

I need to check but I thought they were doing pre-production on AC3 and then handing it over to another studios for the full production and I assumed not bearing all the costs of production but I could have that wrong. They do make imho the best trailers of any game company and I'm constantly smiling at their quality and shaking my head at what they must cost. I hope that hasn't gone to their heads!

Results tomorrow and I'm expecting pretty much in line and re-stating forecasts. Given the stock price action it looks like some people are expecting a miss but that could only be based on the softness in the overall market because the performance of GRFS (which must be their big money spinner) is as good as anybody could/should have expected.

tsanalysis's picture
I'm happy with results.

I'm happy with results. Sales beat guidance due mainly to higher than expected Ghost Recon sales and currency translation. Even factoring out currency effects however sales still beat guidance. Also nice growth in digital and free to play. Offsetting those was decline in back catalog sales. Sales guidance for Q2 is lower than last year due to Far Cry 3 moving out of the quarter but sales and operating income for the full year were reiterated. So, pretty much as expected.

I wonder how the stock will react to these results. I believe this is the last earnings report until after the release of ACIII. The past couple years Ubisoft has reported Q2 results a week or two into November. And with Far Cry 3's release moved to December we don't have to worry about that game flopping until after ACIII's release. So general markets notwithstanding, is it now all clear for Ubisoft to run-up on hype leading to ACIII's release?

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darrens's picture
Results tonight and they

Results tonight and they actually beat their sales forecast by nearly 15% so that was good. I was really pleased to see that they'd re-structured their debt because, even though we don't know the terms of the covenants, my only nagging worry was about cashflow.

I was amazed to see that they think they're going to make €110m from Q2 out of this

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They seem to think that GR Online will be significant but I immediately feel Q2 is a risk. It doesn't make much different to the year because Q2 is effectively dead but I can imagine a miss there.

Overall though, I think Ubi look very good. If only we could eliminate GTAV from our worries.

tsanalysis's picture
I see what you mean about Q2

I see what you mean about Q2 guidance looking questionable with that lineup. However if Ubisoft were conservative with their initial shipments of GRFS, don't you think they could ship-in another 1 million units during the September quarter? Also missing from that list is the first DLC pack for GRFS which was just released. So that could help a little bit too.

At any rate, Q2 results will not be until after ACIII's release like I said in the previous post, so not much of a concern (unless they warn before-hand, which seems unlikely to me).

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darrens's picture
Hmmm...they didn't mention

Hmmm...they didn't mention the DLC pack for GRFS which is a bit weird because it'll do better than most of the other stuff they've listed.

I'm not sure if they've got another 1m ship in of GRFS. Sales are so soft at the moment that I wouldn't be counting on it although I guess if they drop the price and it has good legs then it's possible.

Probably academic but it just felt off to me that they could do €110m. We know catalogue is weak. We know online is growing but still in the €20m-€30m per quarter range so I just couldn't see how they'd effectively do Q1 number without any decent new releases.

However, I'm starting to have a bit more confidence in Ubi as having decent control of their finances which gives me some comfort.

At these levels I think they're a steal. Unless GTAV releases late October *gulp*

tsanalysis's picture
I keep forgetting that

I keep forgetting that Ubisoft has an earnings call. Some good stuff in there. Addressing your concern about Q2 guidance, they said that initial Just Dance 4 shipments will occur in September, positively impacting the quarter. Knowing that, along with some amount of GRFS reorders and the GRFS DLC pack, I feel better about Q2 guidance now. Below are all my notes from the call.

- GRFS higher than expected initial sales and higher average sales price.

- Just Dance 4 initial shipments will occur in September positively impacting Q2.

- ACIII preorders are 3x that of AC Revelations, Ubisoft's previously most pre-ordered game. Gamestop said recently look for Assassin's Creed to take some business this year. So Ubisoft think they are ready to take Assassin's Creed to the highest levels of the industry.

- Splinter Cell Blacklist most ambitious game in series and is not included in fiscal year guidance.

- Highlighted Watchdogs reception at E3.

- Reiterated Guidance for the fiscal year includes increased contribution from GRFS and ACIII compared to previous plan compensating for larger decrease in back catalog versus previous plan.

- 7 Wii U games around launch. Only projecting less than 5% of total sales from Wii U. So limited risk with upside potential. Opportunity to leverage multi-screen technology on other platforms.

- 50-60 million Euro guidance for free to play in the fiscal year. 5-6 free to play games running by end of the fiscal year.

- Operating income for first half down year over year due to marketing for 2nd half games and investment in digital infrastructure.

- Of 7 Wii U games releasing around launch, 5 games are ports. Ports are quite small investment, maybe less than 1 million Euro each. Rayman and Zombie U are more expensive, but still much less than say GRFS.

- Planning for casual gaming to be down more than 10% year over year.

- Look forward to next year with brands like Watch Dogs and others, that will help them to continue to grow. So expecting a good year this year and an even better year next year.

That last one was their very last remark from the call and so was more of a wrap-up/conclusion type remark than an official guidance type remark, but if they really can grow sales and earnings in fiscal '14 I will be quite impressed. As it stands my plan is still to exit my position around the release of ACIII but if I become convinced of fiscal '14 strength I may become convinced to hang around awhile longer.

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darrens's picture
I must confess I've stopped

I must confess I've stopped listening to conference calls but it sounds like I should be listening to the Ubisoft ones because you've actually managed to pull out some really useful points. Ubisoft are obviously happy to be a lot more transparent than their US counterparts.

As you say, that allays any fears about Q2 guidance.

Putting it all together I have to say that Ubisoft have a really good story and are doing an excellent job in an awful market. This isn't a "blip" year, almost everything they do has longevity to it. They also seem to be embracing the "dumbbell" model and cutting out a lot of the the mediocre stuff that was weighing them down.

The biggest risk for Ubisoft is that they are, still, a one product company. Take Assassin's Creed out and that changes everything. The fact that AC3 looks like strengthening that franchise is therefore key to having a warm feeling about Ubi but in terms of strategic risk then that's the biggest one imho.

darrens's picture
Ubisoft starting to run and,

Ubisoft starting to run and, for once, the warrants have reacted to and rocketed. I'd decided that GTAV wasn't going to hit in October so was happy to accumulate more warrants in the mid 20s but it looks like those days could be over. However, I'm happy to see the warrant price reacting because I had a niggling worry that I'd missed something in the fine print because, as has been said before, they seem mis-priced and almost too good to be true.

I still think they're excellent value but I do wonder if I'll look back that warrant price in the 20s and just kick myself for not selling everything I own and buying Ubi warrants.

tsanalysis's picture
I added some more warrants in

I added some more warrants in the mid 20s as well up to what I considered my full target position. As attractive as I thought they were, the fact remained that they are still options which could potentially expire worthless, so that limited how much of my portfolio I could allocate to them. I am happy to see the warrants moving, but if Ubisoft's recent rise is due to takeover speculation in sympathy with EA, then Ubisoft could give those gains back quickly. Still, the warrants are the swing-for-the-fences part of my portfolio and there is still plenty of time and catalysts left so I plan on holding out for outsized gains on the warrants.

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darrens's picture
I *think* that Ubisoft is

I *think* that Ubisoft is simply undervalued and that the recent rebound is nothing more than a bit more strength in the European markets coupled with the fact that everybody has made their peace with the huge drops in the video game industry so the monthly figures no longer hold any power to shock.

I don't want to be silly but I genuinely believe this could be back in the mid-teens before the warrants expire. A hugely successful AC3 and a moderately successful Wii U could just get people's confidence back in Ubi. I love your "swing for the fences" line. It's not a phrase I've heard before, and I'm no baseball fan, but I still know exactly what you mean.

darrens's picture
Ubisoft on a little charge

Ubisoft on a little charge this morning (up 5%) and approaching a 1 year high. I can't find anything in particular to explain the rise and there was nothing in the NPD numbers last night which would have given a boost to Ubi. I think it's probably just a combination of the wider markets being up, Just Dance 4, Wii U and Assassin's Creed 3 round the corner and the promise of a new Xbox next year.

Warrants currently at about 4.3 euro cents which is up a whopping 70% on where they were a month ago. They are still in the money at about a euro over the current share price (about 16%) and expiring October 2013. Even up 70% from a month ago they still seem excellent value and the best way to go long on Ubisoft.

It might be related to their

It might be related to their F2P/Mobile showcase in Paris on Thursday (even Bloomberg was covering the event). Ubisoft showed a truly excellent Rayman Game on iOS, and a few other interesting games on mobile.

They also have a very strong F2P lineup on PC. Right now there are 9 products coming or already in beta : Ghost Recon Online, Shootmania Storm, The Mighty Quest for Epic Loot, Might & Magic Raiders, The Settlers Online, Anno Online, Might & Magic Heroes Online, Might & Magic Duel of Champions, Silent Hunter Online + Howrse (a F2P browser based horse game that as already 42 million registered players + 2.55M Monthly Users) that they just bought.

Shootmania Storm, the Mighty Quest for Epic Loot, Ghost Recon Online and Might & Magic Raiders are already to the quality level of traditionnal retail games. And except for Might & Magic Duel of Champions and Silent Hunter Online by which I am not entirely convinced, the rest of the stuff looks very interesting.
Right now it looks like Ubisoft F2P strategy is "throw a lot of stuff at the wall and see what sticks", but for F2P games, the quality is already so high that most of the stuff might actually stick. Among the traditionnal publishers, they look to me like the only one who is really understanding the F2P transition and trying to embrace it in a smart way. They seem to be right on time with the right projects and the right mindset unlike EA which still seems to struggle with it.

darrens's picture
I did wonder if that had

I did wonder if that had anything to do with it but it seemed a bit unlikely. However, you may be right and I agree that Ubi are certainly doing an awful lot of throwing stuff at the wall, or setting lots of hares running, or taking a shotgun approach to the "new" game models.

Did you ever see this thread on f2p and why, as far as I can work out, it's irrelevant for the big publishers?


darrens's picture
Interesting feature following

Interesting feature following the Paris show that you mentioned


darrens's picture
I'm increasingly warming to

I'm increasingly warming to Ubisoft. I've held back being a strong supporter of Ubisoft because, as discussed here many times, they have taken such a shotgun approach to their products that they've been held back by the dead weight of mediocre products which just haven't sold.

However, I think they have, more than any other publisher, really embraced the dumbell approach to video game products pushing their mediocre products either further up towards the big-budget triple-A end or else moving them down to the casual end. The two things that have really convinced me of this are the Far Cry and Call of Juarez franchises.

Far Cry was, for me, a really good example of a franchise which would struggle enormously at the moment. It is just the type of game which may have sold okay a couple of years ago but in the current market would probably have had a decent first week and then died. I was rather concerned when Ubisoft decided to spend a bit more time on it and release it in the holiday window. It just seemed to be even more likely to get lost in the Medal of Honour, Halo 4, Call of Duty bunfight.

However, it's become obvious from recent previews that they have pushed this title up towards the mega-hit end of the bar. High production values, bigger budget and (hopefully) a better game. Of course, it still has plenty of competition but it seems that Ubisoft have made a decision with Far Cry to try and establish it as another big franchise. We'll have to see if that gamble pays off but it shows that Ubisoft are understanding the market.

Taking Call of Juarez, another struggling franchise, they have announced that the next title in the series will be download only, in other words pushing this franchise down to the other end of the dumbell. Lower budgets, lower marketing/distribution costs and lower price point. This is where a lot of Ubisoft's titles now sit, either in the casual, free2play or download only camp. Ubisoft still have a shotgun strategy but it's down where the "misses" are less costly and that's exactly where it should be. The new business models around free2play and download only titles gives Ubisoft somewhere where they can put their casual, or niche, titles.

So, now that Ubisoft appear to be embracing the dumbell strategy - choosing with franchises whether to properly get behind them or to "relegate" them to the casual end of the market, I'm really starting to wonder if Ubisoft are representing the best investment in the sector.

What may tip the balance is the extraordinary good value of the October 2013 warrants. With today's premium they are still in the money at anything above €7.53. So, that's about 12 months for the share price to increase 17% from today's price and if something catastrophic were to happen then you're only losing your premium. It would only take the share price to drop about 8% for a loss on the share to be more than the maximum loss on the warrants.

Are all the planets aligning for Ubisoft?

darrens's picture
We're heading into a very big

We're heading into a very big few months for Ubisoft and so I thought, given my leaning to them as a strong buy, that it was worth giving a more up to date view of the games that they are hoping will be big for them in the coming quarter. I remain a strong a believer that the best way to beat the market on video game stocks is to have a better view than the market on how well the big titles will perform.

Here's how I think Ubisoft stand at the moment.

Assassin's Creed 3. Although Ubisoft aren't a one hit company, this title is far and away their biggest contributor to annual profits and a small swing on sales will have a major impact on their profits. Other titles may be the icing on the cake, or the cherry on the cake, but this is by and large the cake.

Early previews of the game when it was revealed were outstanding and it has pretty much kept up the momentum. This is the first major release since AC2 in 2009 and, truth be told, the annual iterations of AC2 (Brotherhood, Revelations) have been very high in quality but there is a sense of franchise fatigue creeping in. So, it's really important that AC3 feels new and fresh and exciting without throwing the baby out with the bathwater.

I would say that, on balance, the most recent previews have remained very strong although slightly more mixed than they have been in the past. Interestingly, the journalists were allowed to roam freely through the game in the recent previews and because it is far more open world than before they therefore did very different things (normally journalists are hand held through the previews without a lot of choice). So, criticisms I read where that some came away with the impression that the game was just the same as before in a different setting. Some said that the architecture of the time (AC3 is set in the US revolution) didn't lend itself to the grandeur and height of renaissance Italy. But most, overwhelmingly, agreed that this was shaping up to be the the best AC yet and the genuinely new gameplay mechanic (naval battles) was a triumph.

I feel fairly confident that this will be the biggest selling AC game to date but the jury is still out on whether this can translate to a quantum leap in sales to move it up to the CoD type level of sales. I think it has a chance but only a moderate one.

Far Cry 3. This is probably the biggest gamble of the quarter. Ubisoft have moved it to a and end of November release which is normally a bit of a binary bet. It's either going to be a big hit or a dud - there's little inbetween at that time of year. Previews remain very positive although some of that is due to the low expectations that many have of the game following the rather mediocre Far Cry 2. Ubisoft have obviously poured more development money into this game and I expect a decent marketing campaign too so they clearly have faith in it. The risk is that this is an fps game which follows on from CoD: Black Ops 2, Medal of Honour: Warfighter, Dishonored and (although it's not an FPS) Halo 4. It's a different setting, different atmosphere and obviously a different game but there's a big risk that the target market for this game will have their gaming hours already filled with the competition.

Just Dance 4. The Just Dance series has done incredibly well but has always had a few weaknesses. Firstly, financially, it's very low margin because it's priced low and there are considerable royalties for all the songs that feature. The second weakness, and the one that may well come to roost this year, is that it's difficult to keep people buying this every year when it is, apart from the songlist, just the same game. The other weakness is that it is mainly a Wii game and the market for Wii is through the floor. There's a Wii U version but the install base isn't big enough to matter. I also do wonder how many Wii U buyers will be wanting to buy a game that's essentially the same as the Wii version. So, I think this will perform far worse than previous years and we could be seeing the end of the dance craze.

Zombie U. I don't think, in financial terms, this is that important for Ubisoft but it may create, or negate, a feel-good factor around Ubisoft. Zombie U is the poster boy for Wii U having hardcore gamer credentials and at first the game got good previews. However, the latest bunch of previews that I've read have all suggested that the game isn't actually that good. Mediocre graphics, slightly frustrating gameplay and, all in all, nothing that hasn't been done better on previous games for other formats. The scarcity of games for the Wii U, and the fact that there's a Zombi U Wii U pack in Europe, may get them respectable headlines but it doesn't look like this is going to be important.

Ubisoft have a plethora of other games coming out (free2play, casual, mobile and so on) but I don't think any of them will be anything other than window-dressing for the big titles mentioned above.

So, that's my latest thoughts on Ubisoft Q4 line-up. Some people may argue that it's a long way of saying it's all about Assassin's Creed 3 but my response would be: it's all about Assassin's Creed 3.

darrens's picture
Ubisoft warrants now at

Ubisoft warrants now at around 6 eurocents, it was only 3 months ago that these were around 2.5 eurocents so that's a rather exceptional 140% rise so far. In that time, the underlying share has gone up about 20%.

Somebody else on Bougafer referred to the warrants as a mis-priced option and it looks like they were totally right. If the Ubisoft share price were to reach €8 (a 20% rise from here), the options would be worth 9 eurocents (a 50% rise from here) plus any premium attached to it. Current premium is roughly 1 euro over the share price and, if that was maintained, they would be valued at 18 eurocents (a 200% rise from here).

So, for a 20% rise in the share price you would be looking at a 50%-200% rise in the price of the warrants.

Of course, if the share price was to drop below €7 then the warrants would be worth nothing if that was still true on October 2013 but you'd only lose your premium. So, at today's prices, if the share were to drop below €6.10 then you'd still lose less if you'd bought the warrants.

So, you protect yourself from a loss bigger than the shares going below €6.10 and you make far more more if there is any upwards movement.

Conclusion? If you think the Ubisoft share price is going up then buy the warrants.

darrens's picture
It's interesting to view a

It's interesting to view a long term chart for Ubisoft.  It's been in a long term decline for a number of years but that downward channel trend looks to be finally broken.  

With the release of Assassin's Creed 3 a few weeks away, followed by H1 results on the 6th November, followed by the release of the Wii U it does look as though the momentum could be carried through.  On a fundamentals perspective, Ubisoft doesn't have a particularly taxing earnings multiples, especially if those earnings can be upgraded with above forecast Assassin's Creed 3 sales.

I continue to believe that the true success of Ubisoft this year will all hinge on Assassin's Creed 3 (with everything else being window-dressing to a large degree) and will be looking at review scores and early sales indications with interest.

Warrants have tripled in the past couple of months but they could have a lot further to go if AC3 delivers on its early promise.  It's always dangerous to think about how the share price will respond but looking at the graph then a jump up to the teens in the next few months doesn't seem impossible.  Ubisoft has been seen as a company in decline for a long time now but the tide may well be turning.

darrens's picture
Review embargo lifted on

Review embargo lifted on Assassin's Creed 3 and the scores are starting to flood in (no "Sandy" pun intended). Currently it is sitting at 84% on metacritic for the 360 version and 89% on metacritic for the PS3 version. It's difficult to summarise some very varied reviews but it seems like the game is a flawed masterpiece with some critics focusing on the masterpiece and some on the flaws.

The scores are pretty much in line with the Assassin's Creed series as a whole but given the very high expectations for AC3 this does feel like like a disappointment.

However, it's not down all down to reviews and it's fair to say that the muscle that both Ubisoft and the retailers are putting behind AC3 at the moment means that this will be the biggest selling AC game ever. I am quite confident of that.

We are going to be looking at record initial sales, even with Sandy taking out a large part of the US population. The question will be whether this has the longevity and legs to keep it selling through the holiday period. That is still in the balance and will determine whether this is another solid seller for Ubisoft or whether or not it can be a breakout and elevate it into the very strongest franchises of this generation.

I'm still very warm on Ubisoft, especially with the excellently price warrants, but I would have like review scores another 5% higher to really fuel the hype that has been building.

darrens's picture
Looks like Ubisoft is going

Looks like Ubisoft is going to take a little breather after a decent run. It's a logical stopping off point since there's plenty of profit, AC3 is now released and review scores were a little bit lower than anticipated. If you've been buying warrants rather than shares then you'll be sitting on nearly 300% profit so the temptation to cash that in is understandable.

So, the question is whether or not this is time to move on or stick with Ubisoft. I think there's a decent argument to stick around for a bit. Results next week (6th November) and we should get confirmation of initial AC3 sales. They've already said it's the most pre-ordered game in their history and I think that initial sales are going to be huge. They've put a huge amount of marketing muscle behind it and so have the retailers. There were 900 stores open at midnight for AC3 launch in the UK alone and that shows just how much the retailers have got behind it. I think in their results they may have something very exciting to say about AC3 sales which will blow away any doubts about the (only) mid 80s review scores.

Looking a bit further ahead then there's the Wii U launch and, although I don't think that will be particularly significant financially for Ubisoft, I think it will be successful and marks the start of the next console cycle. Well, that's actually pushing it a bit but I think that will be how it will be reported and it will give a nice glow to a sector that has been battered. Ubisoft's ZombiU game will also feature quite prominently in the launch line-up.

Then there's Far Cry 3 which I think is the next big question mark for Ubisoft. I'm not sure there's room for another FPS around the holiday period so I'll be watching the hype and reviews as we build up for that.

So, an interesting time for Ubisoft and, undoubtedly, we're at the first stopping off point after a good rise but I think there's plenty more coming up which could fuel the price higher.

darrens's picture
Ubisoft announced their Q2

Ubisoft announced their Q2 results yesterday and they were very strong. Q2 handsomely beat forecasts thanks to continued strong sales of Ghost Recon: Future Soldier and a higher than expected initial shipment of Just Dance 4. That shipment seems to have caught out some of the analysts who were modelling a Q2 miss but thanks to tsanalysis in his post here we already knew about it.

However, all anybody really cared about was AC3 sales and consequent guidance. They estimated that in it's launch week, AC3 sold through 3.5m units - that's double AC: Revelation. They also said (in the conference call) that they are now expecting AC3 sales in their Q3 to be above analysts expectations of 10m units. They didn't say ny how much but, for reference, AC:R sold in 7m units in Q3 last year so if they were to continue to double sales then they would be looking at 14m units. I doubt sales will continue to double because titles are more front-end loaded this year than last but somewhere around the 11m-12m unit mark for sell-in may be realistic.

They tried to dodge the question but clearly there will be an AC3 sequel next year.

In terms of numbers they upped their sales forecast to €1.2bn - €1.6bn and raised the top end of the range of their forecast for current operating profit (the nearest to non-GAAP) to €100m, leaving a bottom end of €70m. They confirmed that the following year (FY14) would show top line growth but didn't want to elaborate.

In reference to Wii U they said they expected 6% of their annual revenue this year to be from Wii U games.

Another snippets from their conference call was that they expect to ship Watchdogs in FY14. Additionally they said that Just Dance 4 was experiencing double-digit reduction in terms of sales compared to JD3 but they expected this (with the Wii coming to the end of its life) and also expect that the Wii U version of Just Dance 4 will make up some of the shortfall.

They were very bullish on the conference call and made the point repeatedly that they were now reaping the rewards of their investment over the past couple of years which has pushed Ubisoft on to being a far bigger and better company than it was. I think they would have loved to have fielded questions for hours but, as is often the way when results are good, questions from the analysts dried up quite quickly.

I think in their forecasts they are allowing themselves a lot of room to cover a potential Far Cry 3 disappointment and a more rapid tailing off of AC3 sales. However, taking the forecasts as they currently stand then Ubisoft remain on a very low rating. As I type, they are on a prospective p/e of 7-10 and a price/sales of 0.55. Looking at the long-term graph they are near an all time low although the trend appear to be turning positive.

You can never be sure but Ubisoft has all the ingredients for a solid rise over the medium term.

I am with you on your assessment, Darren.

Their forecast was for revenue between €1.20bn and €1.26bn.

I remember the days when the stock was more than €30. It's strange to see it hovering around €7.50 these days while their projected revenues have never been higher. Surely, the multiples have shrunk everywhere since 2008 but should they have shrunk this much for Ubi?

Just like on their previous call Yves sounded very optimistic. That bodes well for a further increase in Ubisoft's stock price.
What I didn't like was the cash balance's steep drop and the prospects of a mere "positive" cash flow for the year.
Shouldn't €100m in operating income lead to a considerably positive cash flow?

darrens's picture
mcp, welcome to Bougafer.

mcp, welcome to Bougafer.

Spookily, I have just updated the publisher valuation and key statistics so we can see that you are absolutely right. Ubisoft's price/sales ratio is 0.6, i.e. the company is only worth 60% of its annual sales. Take Two is next lowest at 0.9 and Activision the highest at 2.5.

Ubisoft's share price is actually 50% higher than it was in the Summer so we can see that it has recovered a bit but it's still in the doldrums.

Of course, if you look at the price/earnings ratios then Ubisoft is still very low (8.4) but not a million miles from the US publishers which are in the 9.5-11.5 band. It makes less money (per sale) than most of the other publishers which makes it's p/e ratio less out of whack than it's price/sales ratio.

It's also listed on the Paris stock exchange which a different investor community and so the perception of the video game space in general may be mis-aligned with the US investors. Of course, there's plenty of US investors in Ubisoft and overseas investors in the US companies but sometimes mis-aligned fundamentals can be (partly) explained by this.

I agree about cash but I'm expecting cash to pour in H2. When you grow in the videogame space then cash out always precedes cash in (because of the long development times) so I'm not too worried about the cash decline. I was, at one time, worried that they would simply run out of cash before the revenues came in but they've avoided that and I'm not so worried about it now. Their cashflow is still going to be different to their accounting profit (because of accruals accountancy rules) but as long as they don't run out of cash I'm not too bothered about it.

The only point in the conference call that made me pay close attention was when one of the analysts asked if their top-line numbers for FY14 were going to be bigger than FY13. Yves did eventually say he expected growth but it was prefaced by a long pause and a few caveat type statements. Activision have suffered since their excellent results because they said that calendar year 2013 was looking uncertain at best. Ubisoft, being a smaller fish, are more insulated than Activision from the pond drying up but they aren't immune.

However, put it all together and I think Ubisoft have one of the best stories in the video game industry at the moment. If we get a successful Wii U launch and avoid a Far Cry 3 disaster then the next month could see the change in fortune for Ubisoft continue.

Thanks for all the work you put in this blog.

Ubisoft's €85m in your table is the mid range of their projected operating income, isn't it?
Their price/earnings ratio will therefore be somewhat higher than 8.4 as you have to adjust it for income tax.
So, if we expect their earnings before taxes to come in at around €100m and a 30% tax rate, net earnings per share
might be around €0.70, for a current price/earnings ratio of 11.

It would be interesting to calculate the after cash price/earnings ratios for the big four. Due to their cash pile Activision even might lead the pack in this metric. But they will not be able to achieve this year's earnings again next year and the prospect of Vivendi trying to get rid of them will probably keep their stock price depressed for a while.

Yves was a little hesitant when asked about next year's plans for Assassin's Creed. Maybe that was the reason why he did not want to talk about next year's revenue projections either. But remember his last sentence on their July call:
"We expect a good year this year and an even better year next year."
So, next year should bring some further improvement, be it in revenue, earnings, cash flow, or market share.

darrens's picture
mcp, yes I've just taken the

mcp, yes I've just taken the mid-range of the forecasts to get the ratios in the table.

It's personal preference but I tend to work out all my ratios before tax. Partly because, as long as you're consistent, you are still comparing apples with apples but mainly because there are different tax implications for the different companies and it shouldn't imho affect their valuations. For example, if one of the companies has a lot of tax liabilities because of past losses which means they wouldn't pay tax in the current year I don't want to give them an unfairly inflated earnings because they have no tax to pay against others which do.

In terms of cash then that's a bit trickier. I can, certainly, see an argument for working out the ex-cash valuations of each of the companies and using that but I don't for a couple of reasons. Firstly, being honest, because it's very tricky to do to work out the net cash position to use as the true free cash position. You could spend a long time going through balance sheets and it would still require some questions to the CFO to get to the bottom of it. Secondly, because none of these companies ever pay a dividend I just assume that they need the cash and, if they don't, then they can buy back shares which will affect the valuations directly.

I realise that there's lots of different ways of looking at the fundamentals and different people take different approaches (with varying degrees of complexity).

I think Yves was hesitant talking about an AC next year because he didn't want to take away from AC3 which had just launched. But separately, I was (very slightly) worried about his hesitation when asked about top line numbers for FY14. He did eventually say there would be growth but there was a long pause and a bit of prevarication beforehand.

Week 2 sales of AC3 in the UK down 73% (Revelations down 61% week 2) which isn't totally unexpected given the strength of the pre-order campaign and the small matter of Halo 4. Revelations was released later which meant that in it's 2nd week it didn't have any big new titles to contend with. However, it will be important for AC3 to keep selling through the holiday season so let's keep an eye on it as we head on to the launch of Wii U and Far Cry 3.

But Activision's eps of $1.10

But Activision's eps of $1.10 is their net earnings after tax, isn't it?

darrens's picture
I've just had a quick look

I've just had a quick look and you're right - the other companies non-GAAP eps does include tax. My mistake, I need to change the Ubisoft numbers. I'd actually like to reverse out the tax impact from the other companies forecasts (for the reasons I stated above) but I'm not sure that's going to be possible.

Thanks a lot for that.

darrens's picture
Getting Ubisoft in line with

Getting Ubisoft in line with the other publishers is a little trickier with regards to tax because Ubisoft forecasts are pre-tax and the other non-GAAP forecasts are post-tax. However, trying to work out Ubisoft's forecasts post tax isn't that straightforward because they aren't taxed on the "current operating income" (which most closely mirrors non-GAAP earnings apart from tax) but they are taxed on their net profit number. There are also clearly rules about netting off losses from prior years but they are complicated and, it would appear, in a state of flux.

Looking back through their accounts, the effective tax rate as a percentage of current operating income was 19% last year (Activision paid 18%). Looking back further they had losses in the two years prior. For the sake of getting to a comparable number then I'm going to take 20% off Ubisoft forecasts to bring them into line.

So, the update table now looks like this and Ubisoft's forward p/e is 10.5.

Give or take, that pretty much brings it into line (from a p/e perspective) with the US publishers. If I've got all the numbers right.

darrens's picture
Far Cry 3 reviews go live

Far Cry 3 reviews go live 21st (end of embargo) which is about 10 days prior to the release. To my mind, Far Cry 3 now represents the biggest risk/reward in Ubisoft's financial year so I'm very eager to see how the reviews come out.

I don't want to speculate too much on something like an embargo date but there are enough signs (the early embargo date, the very good previews, the comment in Ubi results) to not give up hope on this title just yet. There are more than enough excellent games like Far Cry 3 out at the moment to worry about it so some good reviews are really needed to get gamers' attention.

darrens's picture
Far Cry 3 reviews embargo

Far Cry 3 reviews have gone live and, going by the early reviews, they've hit it out of the park. Metacritic currently around the 90% level for the different versions (88, 91, 92 for the PC, PS3 and 360 respectively) with universal acclaim for the single player part of the game. The only real negatives have been about the multi-player which isn't bad, but is fairly generic.

This is a great achievement by Ubisoft who have taken a slightly mediocre franchise (Far Cry) and have really pushed it up towards the blockbuster end of the scale.

The fly in the ointment is that in terms of press and marketing they've clearly dropped the ball because a game this good shouldn't have come as a surprise to everybody. There's been very little in the way of hype and anticipation and clearly the way they've presented the game to the press and the industry hasn't relayed the quality of the game.

My speculation earlier that the "early" lifting of the review embargo was a sign that the game was better than the expectation has been proven correct. Ubisoft obviously realised that they needed to generate some excitement about the game and some 90% reviews is a pretty good way of doing that.

We'll have to see over the next month whether the excellent reviews can overturn the slow start but it was important for Ubisoft that their #2 game was well reviewed and they've now got that. There's not a direct correlation between review scores and sales but Far Cry 3 needed a boost and it's got a big one.

darrens's picture
Propelled by the excellent

Propelled by the excellent Far Cry 3 reviews, the seemingly strong showing by Ubisoft in the Amazon Black Friday sales and the decent Wii U launch, Ubisoft has continued in an upward trend and is now just shy of the €8 mark.

The warrants (which I have been going on about for a while now) are now a 4 bagger from the summer, i.e. they've gone up 4 times from their 2.5 eurocent price to their current price of 10 eurocents. That is an astounding return on investment in only 4 months and if the share continues to rise then the acceleration of the warrants will now increase in absolute (not percentage) terms. The premium over the share price, which was sitting at nearly €2 in the summer, is now down to about €0.3. This means that while there has been a €0.075 increase in the warrant price for a nearly €3 increase in the share price, there should be a near €0.09 increase in the warrant price for every €1 in the share price from here.

With a finite and limited downside to the warrants I still think they represent the best way to invest in Ubisoft.

The question now is whether or not the upward channel can be maintained or if the re-rating has finished. Time to work through the numbers.

tsanalysis's picture
As I posted at my blog, I

As I posted at my blog, I sold all my warrants in the 8 eurocent range, so I "only" got a 3 bagger out of them. When deciding whether to hold or sell, I made an extensive list of pros and cons for Ubisoft, but in the near term I think Ubisoft's prospects still basically depend on the success of their big, wholly-owned IP, AAA games on PS3/360. Ubisoft's PC free-to-play and digital sales are nice but still a relatively small part of the overall business. Ubisoft's dance genre games were probably never very high margin to begin with so I am not too worried about them, even if they are in decline. Wii U volumes are too small to be meaningful this holiday, and I am not sure it will have long term success beyond the early adopters. PS4/XBox 720 are still aways off and I have my doubts about them as well. So in my decision I was mostly focused on ACIII, Far Cry 3 and Splinter Cell Blacklist, and further out Rainbow Six Patriots, ACIII-2, and Watchdogs.

So about the biggest factor to near term performance first, ACIII. The most timely info we have on sell-through are the UK charts, which are released weekly. So that is where I focused a lot of my attention. It was reported that ACIII sold around 50% more units week one compared to AC:Revelations. However, like the trend we have seen with many other AAA releases the past year, I think sales are becoming more front-end loaded. Just as a few examples, MW3 early sales were higher than its predecessor, but lifetime sales were ultimately similar or lower. The same was seen with EA's annual sports franchises. I think the same will hold true for ACIII. My best estimate is that through week 4, cumulative ACIII sales in the UK are only around 30% higher than for AC:R. AC:R shipped more than 7 million units in their fiscal year (end of March) according to Ubisoft. I saw some analysts projecting as much as 13 million units for ACIII in the fiscal year, which would be around 80% more than what AC:R did. So I thought that ACIII projections had gotten too aggressive, and the risk of under-performance was greater than the possibility of over-performance.

Now on to Far Cry 3. When I sold my warrants, I considered Far Cry 3 to be a wild-card for Ubisoft's quarter. Clearly Ubisoft has gone big with Far Cry 3 and pored a lot of effort into it to make it a break-out hit. Poor sales would only add to potential shortfall from what I thought were aggressive ACIII projections. However a break-out hit could put Ubisoft's quarter over the top. The early embargo date on reviews was an encouraging sign and the early reviews are great and clearly gave Ubisoft's shares a lift. However, I am still not convinced that Far Cry 3 will be a break-out hit. Before the reviews hit there appeared to be very little buzz for Far Cry 3, and after the great reviews that does not appear to have changed much. One week prior to release, the 360/PS3 versions are only around #200/#300 on Amazon's best selling list (in the US), which is very poor for what is expected to be a big release. So I think risk of Far Cry 3 under-performing remains high.

The next big release after Far Cry 3 will be Splinter Cell Blacklist. Ubisoft said it is not included in current fiscal year guidance, but as one of the next big releases it still factored a little into my decision. Here again I have not seen a significant amount of buzz, and the first half of 2013 is really loaded as far as competitive releases, so I think the risk of under-performance remains.

And although it did not play a big part in my decision, I was not convinced that holiday 2013 was a shoe-in to show growth over holiday 2012. I am pretty sure we will get a sequel to ACIII, but I think GTA V will probably be the last hurrah for this console generation and holiday 2013 could be when we see even the top of the top franchises (which have held up better than I expected so far) start to suffer significant declines. I am thinking of the Call of Dutys, the FIFAs, Maddens, etc, and so I think an ACIII sequel could be down significantly year over year. There has been no mention of Rainbow Six Patriots in awhile, and it appears that may now be a next gen game instead. And while Watch Dogs certainly impressed with its E3 showing, I think volume will not be significant if it is a next gen title on systems releasing holiday 2013, and that it will not be a huge seller if released on 360/PS3 because the graphics will be a significant step down from what was shown at E3.

Also, one quick note about the Amazon Black Friday sales. I do not remember if last Black Friday this was the case also, but this Black Friday ACIII and JD4 were heavily discounted on Amazon. Perhaps JD3 was discounted, but I kind of doubt that AC:R was since it would have been only a couple of weeks after the game's release.

Whenever I establish a position I always like to plan my exit strategy in advance. In the case of my Ubisoft warrants I wrote at my blog that my plan was to buy early when no one was paying attention and sell into the hype for AC III. Discipline to my exit strategies is very important to me, and for me to change that I would have had to be convinced that not all the positive information was already priced in, and that there was still very strong potential for positive surprises. With the reservations I just discussed, I ultimately decided selling at that point was the right decision. The strongest argument in my mind for holding on was that technically Ubisoft's chart looked very strong (and still does). However between technicals and fundamentals, I will go with fundamentals every time.

Now I am always monitoring the situation, and if ACIII or Far Cry 3 sales should surprise, or some other positive surprise occur, or if Ubisoft were to correct a lot, I would not be adverse to buying back into the warrants, even if it is at a higher price than I sold at. But for now I am happy with my decision and am content to sit on the sidelines and watch developments unfold.

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darrens's picture
One factual disagreement on

One factual disagreement on Ubisoft is that you said AC:Revelations sold 7m units in Ubisoft's fiscal year whereas, I think I'm right in saying, it was actually 7m units sold-in during in their Q3 (i.e. Oct-Dec quarter). They actually said "coming in at close to 7 million sell-in units" for their Q3 results. In their last conference call they said that the analyst consensus for AC3 sell-in (again during their Q3) of 10m was too low. They didn't say by how much. So, by my reckoning AC3 needs to do 40%+ better than AC:R to meet their internal forecasts. From the UK numbers that does look a little bit touch and go but I'm concious that with the collapse of GAME the general state of UK retail isn't very healthy. It regularly seems to underperform the US in terms of the monthly sales data so I'm not too worried about AC3 as long as it stays strong which it does appear to be doing. I also can't remember whether ACR was heavily discounted for the black friday sales but I read a lot of chatter on the internet about people waiting for black friday to buy AC3 because that's what they always do with the AC games. Probably not a representative sample size but it does seem that AC and Black Friday sales are put together in some peoples' minds.

Far Cry 3 released today in Europe and I was very worried that releasing a title into the "window of death" may mean it gets lost. Pre-sales seemed very sluggish and it really needed something, like excellent reviews, to get the game moving. Well, the reviews were, indeed, excellent (over 90% on metacritic for the 360 and PS3 versions) but I can't say that has ignited the pre-sales and so Far Cry 3 remains a worry for me. I expect a fairly poor showing when we get the charts next week, reflecting the lack of pre-sales, and Ubisoft will be hoping that word of mouth and people actually seeing the game converts sceptics into consumers.

Having a look at the numbers, Ubisoft did €652m in sales for Q3 last year and are forecasting €740-€800m for this year. Stripping away the bits and pieces you've got an increase in AC3 over ACR (7m units last year), the release of Far Cry 3 and the double-digit decline of the Dance titles (13m units last year). Add it all together and they need to make €88-€148 more sales over last year to make forecast.

My guess would be that AC3 will do at least 3.5m more units than ACR. At €35/unit that gives an extra €123m.

Worst case scenario for FC3 is 1.5m units so, again at €35/unit, that gives an extra €53m.

Worst case scenario for the dance titles is they do 7m units. At an average of €15/unit that takes off €105m in sales.

So, I think the worst case scenario is that sales come in at €71m better than last year which is €17m below the bottom of the range. However, I've ignored ZombiU because it's small beer but I would have thought that would fill the gap in a worst case scenario.

Being more optimistic (but not a best case) I think you've got AC3 selling 5m units more than ACR, FC3 selling 3m and the Dance titles doing 10m units. That gives a sales increase of 175+105-45 = €235m better than last year or about €809m in sales ignoring the bits and pieces.

So, although I'm worried that AC3 wasn't quite the breakout that Ubisoft hoped for and I'm worried that Far Cry 3 sales won't match up to the reviews, I think they are reasonably safe in their forecasts even if everything trends towards the bottom of expectations and with a following wind could beat forecasts handsomely. Even with the recent price rise, Ubisoft remains on a forward p/e of under 11 which is not low given it's peers but is undemanding generally, particularly when they've (unlike Activision) already said they expect next fiscal year to show growth.

tsanalysis's picture
I think we are both right

I think we are both right about ACR sales. I couldn't find it in Ubisoft's year end earnings release, so think I got the 'greater than 7 million units shipped during the fiscal year' from Ubisoft's fiscal year end earnings call. But without going back and listening to it, it is also mentioned here that ACR sold 7.2 million units as of March 31st, 2012 (it doesn't specify whether that is shipped or sold-through though):


So I guess not too many more sales of ACR occurred in the March quarter.

About ACIII projections, I remember from their call where they said analyst projections of 10m units for ACIII were too low. That is what worried me. I'd have to go back and listen to the call again, but it sounded to me like Ubisoft was saying not only that the analyst consensus was too low, but that the company's guidance was based on shipments greater than that analyst consensus, which looking at the UK figures seemed like an aggressive target.

And while Ubisoft did say they expect to show growth next fiscal year, I don't really have a high degree of confidence in that for the reasons I mentioned.

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Some Ubisoft numbers

Darren and TS, thank you for all your valuable insights.

I have compiled some (split-adjusted) Ubisoft numbers for the last 10 years (Dec 2002 - Nov 2012).
Hope I got all of them right:

The average closing stock price during that period was 9.74 EUR.
57 % of the time, the stock price was higher than today's 7.71 EUR.
The high was at 33.50 EUR (334% higher that today) in December 2007,
the low at 2.44 EUR in January 2003 (today, it closed 216% higher).
The median was 8.60 EUR (11% higher than today).

Factoring in 2% inflation per year yields these numbers:
The inflation adjusted average closing stock price was 10.73 EUR.
61 % of the time, the stock price was higher than today's 7.71 EUR.
The high was at 36.93 EUR (379% higher that today) in December 2007,
the low at 2.97 EUR in January 2003 (today's close was 160% higher).
The median was 9.43 EUR (22% higher than today).

Here are some more inflation adjusted medians:
1-year median: 5,73 EUR
2-year median: 6,18 EUR
3-year median: 7,09 EUR
4-year median: 7,85 EUR
5-year median: 9,28 EUR
6-year median: 10,99 EUR
7-year median: 11,12 EUR
8-year median: 11,06 EUR
9-year median: 10,42 EUR

So, the question is:
Is Ubisoft worse off today than it was for most of the last 5, 8 or 10 years?
Does their future look less bright that it used to?
And the answer seems to be:
No, their projected revenues and earnings are at very high - or even their highest - levels.

That's why I don't see any good reason why the stock price should not advance towards its
long-term inflation adjusted median. The best reason I could think of is that it has already
doubled since its lows in October 2011 and that that will likely lead to some profit taking.

Here is a website with interesting projections (not mine):

tsanalysis's picture
Hi MCP, thanks for the

Hi MCP, thanks for the statistics. I have not done this myself for Ubisoft, but I think you really need to look at historical P/E ratios instead of just the share price. Also, psychology plays a part. Console video games are now considered a mature market instead of a growth market, so the P/E ratio investors are willing to pay for the primarily console publishers is not as high as historically.

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darrens's picture
Interesting numbers mcp

Interesting numbers mcp although, like TS, I'm not totally sure if they are strictly relevant going forward apart from the psychological aspect. All the game publishers are in the doldrums at the moment because of the state of the industry. I agree that in many ways Ubisoft is probably as strong as it has ever been but when the industry is in a double-digit decline (apparently, although that only includes physical rather than digital) it's probably why the valuations of all the publishers are so low at the moment.

This obviously needs to be updated but if you look at the recent table of publisher valuations then Ubisoft wasn't really out of line based on what we currently know.

Far Cry 3 debuts at #2 in the UK charts with the 9th biggest launch week of the year. Given the seemingly total lack of pre-release hype that is actually a bit stronger than I expected. I'm sure that Ubisoft will be hoping that the quality of the game and excellent reviews keep it selling steadily through the next couple of months.

For reference, in the Dutch charts Far Cry 3 PS3 and 360 are the #5 and #8 best selling SKU.

ZombiU is #17 in the UK charts, the 3rd best selling Wii U game behind Nintendoland (#11) and Super Mario Bros U (#14). I assume those numbers include the bundles.

All in all, a pretty good week for Ubisoft with Far Cry 3 in particular doing better than the pre-release hype suggested.

Update: it seems that Charttrack have mistakenly included unit sales for AC3 in their press release " Ubsioft drop 1 place to No5 with ‘Assassin’s Creed III’ (53,923)"

darrens's picture
There are a couple more data

There are a couple more data points to look at which give a bit more insight into how well Ubisoft are doing in their most important quarter.

The most important is that AC3 did 2.9m in November compared to ACR which did 1.26m (Edit: I mistakenly said 1.7m which originally) last November. Even allowing for the fact that AC3 came out a couple of weeks earlier that is still very good numbers for AC3 and does bode very well for it's December performance and breaking the 10m shipped numbers that Ubisoft have said they are forecasting to beat. They have no doubt spent a lot more marketing AC3 than ACR and the development costs will have been far higher but that remains an outstanding first month for AC3 in the US and would have been above, or at the highest end, of most people forecasts.

Far Cry 3 has also launched and had had an encouraging first couple of weeks given the backdrop of very little in the way of pre-release hype. Across Europe (where we have some sales data) it has been in the higher reaches of the charts and, I think most importantly, hasn't dropped away in its second week. You could argue that week 1 was tepid due to the lack of expectation and pre-orders so that was why week 2 was good but it does seem the excellent review scores and word of mouth may be working in its favour. Total conjecture but I wonder if there are a proportion of BLOPS2 players who, having completed the campaign and aren't sold on the multi-player, will be trading their copies in for FC3.

Chart positions don't tell the whole story but the fact that Ubisoft has 3 titles in the top 5 in the UK charts at the "business end" of the year gives them bragging rights if nothing else.

On the flip side, Just Dance 4 is suffering a(n expected) big drop and ZombiU is even more inconsequential than feared.

Put it all together though and I think Ubisoft are looking in good shape to meet/beat their Q3 forecasts but as more data becomes available over the next few weeks we'll have to keep checking to see if that remains true.

tsanalysis's picture
The recent data points have

The recent data points have been interesting. First, my take on AC3. The November NPD total of 2.9m units for AC3 was outstanding, certainly above what I was thinking. My records have ACR doing 1.26m units last November and 1.2m units last December according to NPD. How sure are you about your 1.7m number? At any rate, AC3 more than doubled, or close to doubled, ACR's November sales, which is very impressive, even considering the 2 extra weeks AC3 had. So there is no doubt that AC3 is proving to be far bigger and more popular than ACR. However I still believe there is an increased front-end loading effect going on too. So I am very interested in seeing the December NPD data. Because of the front-end loading effect (and the lack of an extra 2 weeks of sales) I do not think that AC3's year over year growth in December will be anywhere near where it was in November. In fact I think it could be close to flat (so around another 1.2m units in December). If that were to prove to be the case, then I think it is a little closer with regards to Ubisoft's projections.

The recent UK data points for AC3 are also interesting. We now have the first 6 weeks of sales for AC3 in the UK. By my estimates (which I think are pretty good), first 6 week cumulative sales for AC3 in the UK are up only 6% year over year compared to cumulative first 6 week sales for ACR. However those first 6 weeks for ACR included Christmas week sales. If I include estimates for AC3 through year-end, and compare launch to year-end projections for AC3 to ACR, then AC3 ends up about up 25% year-over-year. Remember that week 1 sales for AC3 were 50% higher than ACR. So I think the UK data shows two things to be true - AC3 is a bigger deal than ACR, but there is also still a front-end loading effect going on too. There may be some factors going on vs. the US market like the American revolutionary setting proving more popular in the US (especially being an election year) and the relative health of US video game retail vs the UK, but I still think we will see a similar slowdown in the US which is why I am cautious about the December NPDs.

Now about Far Cry 3 UK data points. From some of the data points which have been revealed it was possible to reverse engineer week 1 and week 2 units for Far Cry 3, and they seem pretty good. The only 8% decline from week 1 to week 2 was a good sign, but wasn't Far Cry 3 released on Friday, Nov 30th in the UK? That would have given it only 2 days of sales in its first week, which I think could partly be why the decline from week 1 to week 2 was so small. So I am waiting for a couple more weeks results before forming an opinion on whether strong reviews/word of mouth is leading to longer legs.

Now for ZombiU, as you mentioned, the accounts I have read said that none of the WiiU games outside of New Super Mario Bros U sold any meaningful amount. So it looks like ZombiU and the rest of Ubisoft's WiiU games will be a negative instead of a positive. And dance is down, but how much compared to tamped down projections I am not sure.

So bottom-line I think AC3 is probably on track to meet or exceed the internal projections, but I do not think by a wide margin unless December sales are really good. I think Far Cry 3 is maybe neutral compared to what Ubisoft were probably projecting for it. And I think WiiU/dance games could be slightly down compared to what Ubisoft expected, even though they seemed to have modest expectations already.

However I think all this could be close to baked in already. AC3 may do a little better or a little worse over the next few months, same with Far Cry 3, but I do not think it will make a big difference with respect to projections or expectations which are already out there. I do believe that the market looks forward, and so may already be more focused on what's next in the pipeline than further AC3/FC3 results (unless they prove to have especially long legs, which in my opinion does not appear to be the case).

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darrens's picture
Aarrgghh, no idea why I said

Aarrgghh, no idea why I said 1.7m for ACR since it was 1.26m as you say. In absolute terms, the UK is suffering far more than the US (as witnessed by the UK being down 22% for November as opposed to the US "only" being down 11%). I think that is more to do with the collapse of GAME than any macro-economic conditions but, whatever the reason, the UK market is generally down a lot more than the US and will go in some way to explain why AC3 vs ACR is doing worse in the UK than the US but only some way.

It's always difficult to know how much of the future is baked in and how share prices will react but I think a strong Q3 for Ubisoft gives credence to a growth story and I don't think that is baked in to the price. The big unknown to Ubisoft's story is the state of the videogame market and whether next-gen consoles will be the next wave of industry growth or proof that the console model is over. I see that as the biggest drag on Ubisoft's (and all the other publishers') valuations.

darrens's picture
So, Ubisoft gave us another

So, Ubisoft gave us another data point which is that AC3 sold through 7m units in it's first month. Given they said that it sold 3.5m in its first week that makes it another 3.5m units for the following 3 weeks.

I have to say that is an excellent performance notwithstanding that it includes Thanksgiving weekend in the US and surely indicates that AC3 will continue to be a good seller. I don't see any reason to think that it won't sell another 3.5m units in the month of December which would give a quarter sell through of 10.5m units. If you assume there would be at least 1.5m units in the retail channel then that means Ubisoft's sell-in (i.e. what they would book as revenue) would be 12m+. That puts it at the top end of my forecast although would be just shy of the most bullish analyst (Nitixis) who has 13m units pencilled in.

Whichever way you look at it though, if that comes to pass it will be an exceptional performance. Taking a (slightly tired) franchise which sold 7m units last year and getting it to 12m+ this year is really something to commend and takes the franchise to a new level.

Far Cry 3 continues to be a bit of a worry for me. The general consensus is that it should sell 2.5-3.5m units in December but, despite the excellent reviews, I'm not sure it is looking that strong. It certainly doesn't appear to have flopped (which was a worry given the total lack of pre-release hype) but, at the same time, it hasn't had the big opening week that most titles tend to have nowadays with all the pre-orders being filled. There are still a few weeks to go and if it hangs around the upper reaches of the charts then that may well be sufficient to get it respectable sales but this remains the only obvious worry for Ubisoft when it comes to Q3 numbers.

Just Dance 4 is selling well but it is well down on last year with the collapse of the Wii market. That's been well signalled though and is baked into everybody's forecasts. As I've said many times before, while the Just Dance brand has been a surprise hit for Ubisoft, with a low retail price and high royalties the margins are very low. Therefore, the unit sales don't get translated to revenues and profits as they would do for a "proper" title. If there has to be a Ubisoft franchises which diminishes then this is the one they'd choose (although would never admit it).

I therefore currently think that Ubisoft will end up being near the top of current revenue forecasts for Q3 and maybe above it. I don't thin they'll beat it by loads because of Far Cry 3 but the performance of AC3 just trumps everything else and sets them up for an excellent quarter. I haven't checked back through their history but I wouldn't be surprised if this was a record sales quarter for Ubisoft.

Looking at the Ubisoft share price then it is up over 50% for the past 6 months (the warrants are up 580%!! so well done to anybody who got into those over the summer). Whilst all the major videogame stocks are up, Ubisoft's rise has out-stripped those of it's peers (Take Two, EA, Activision) which in mainly reflects that it was the most down-trodden.

So, the real question now is whether it will not rest at these new valuations or if there is more to go. To those that follow the sector closely I think all the good news is now out. So buyers now would be those people who don't follow the sector closely or remain unconvinced about this quarter. I could imagine that this could drive the price still further particularly if/when Ubisoft starts to report record numbers.

The other factor to consider is how Ubisoft's future looks, beyond this fiscal year. In terms of what Ubisoft have said so far, they've said that they expect sales growth next year. Looking at their line up then, on the face of it, that does seem possible if Watchdogs is seen as a franchise on the Assassin's Creed level of sales which is how it's been talked about thus far.

On the flip side, the whole industry faces enormous uncertainty in 2013 and beyond. We are very clearly squeezing the pips out of this generation and Sony/MS plans remain unclear with regards to features and timescales of the next generation of consoles. Ubisoft can point to the fact that they've produced record results in a year of industry contraction but they can't keep doing that unless the industry rebounds in some way. That is very unlikely to happen in 2013 (assuming the Wii U doesn't replicate the Wii's success) but could happen in 2014.

So, on the one hand you have a company that is tangibly bigger and better than it has ever been in the past versus and an industry which is tangibly smaller and who future is uncertain.

If investors focus on the former then it wouldn't be hard to imagine Ubisoft going considerably higher than today, doubling doesn't seem out of the question. However, if investors focus on the latter then Ubisoft probably can't expect to do anything more than drift around current levels until things are more certain.

It will be very interesting to see market sentiment towards the video game industry as a whole over the next few months because if it buys into the next generation of consoles driving growth then all the publishers will benefit but Ubisoft has put itself into a fantastic position to be noticed above the others.

tsanalysis's picture
Today's UK Chart-track data

Today's UK Chart-track data is starting to form an interesting picture. This was AC3's 7th week. ACR had 7 weeks from launch until year end. By my estimates cumulative sales for AC3 through first 7 weeks are now roughly flat with cumulative first 7 week sales for ACR. AC3 still has two more weeks until year end though, so if I project those out then looking at total sales from launch until year end (the December quarter), AC3 sales will end up around 20% higher than for ACR.

Breaking down AC3 sales by month and comparing to ACR reveals some more interesting trends. By my estimates AC3 (with its two additional weeks of sales) sold 60% more units in November than ACR. However during the first two weeks of December I estimate AC3 sold 33% fewer units than ACR. I think that is a strong indication of the front-end loading effect. So I think December sales for AC3 could actually end up down quite a bit from ACR.

On the other hand, Far Cry 3's week 3 sales were quite good I thought, down only 25%. I thought part of the reason why FC3 might have been down so little from week 1 to week 2 could have been because FC3 released on Friday its first week. So I thought we might see a big drop in week 3. But down only 25% is pretty good so maybe the positive reviews/word of mouth is having an effect and FC3 could end up doing better than I thought.

All this is just from the UK data. I will be interested in seeing the December NPD data to see if the same trend is occurring in the US.

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darrens's picture
UK data is very useful in

UK data is very useful in that we get quite a lot of information which covers, fairly accurately, all the physical sales. However, this year has been a difficult year for UK video game retail following the collapse of GAME and it's re-emergence with only about half the number of stores that it had before it went into receivership. That may be one of the reasons that UK retail has struggled so much this year in relation to other territories.

That's all, fairly obviously, a pre-amble to saying that when trying to extrapolate UK data to the rest of the world this needs to be factored in. As a rule of thumb I used to say that UK was about 1/6th of the world's sales (1/3rd of Europe which is roughly equal in size to the US). That rule of thumb doesn't seem to hold any more and I'm not quite sure what it now represents that simple extrapolation doesn't work like it used to.

I think AC3 is a perfect example of this where in the UK it seemed to be struggling to better ACR by even 50% whereas in the US it was up well over 100% for November. For that reason, I'm less worried about AC3 sales in the UK. I do agree with you that games are more front-end loaded with much better, bigger, more significant pre-order campaigns but I still think if AC3 did 3.5m in its first week, 3.5m in the 3 weeks thereafter then doing another 3.5m in December looks very possible.

As you say, we'll have to wait for US data although December will be stronger in Europe than the US (the other way around for November). Unfortunately the data for last December only shows that ACR sold between 600k (for SWTOR in 14th place) and 1.2m (Mario Kart 7 in 4th place). Best guess at around 1m for ACR in 7th place but that's just a guess.

Far Cry 3 continues to worry me because even though it seems to be hanging around the top of the charts it didn't have that big week 1 which normally contributes a significant proportion of sales. I don't know what Ubisoft have forecast but analysts are talking about 3m units sold through which seems top end for me.

So, I'm probably slightly more positive than you on AC3 and less positive on FC3.

I'm not sure how much more data we're going to get until January when we'll see NPD probably 10th Jan and Ubisoft often issue a Q3 trading statement 9th or 10th Jan.

darrens's picture
Far Cry 3 on a massive price

Far Cry 3 on a massive price promotion on the UK for the past week. Down to £22.49 in GAME and on Amazon compared to £35 for BLOPS 2 and £42.99 for AC3. Hitman is under £20 and Halo 4 is £25.

This has seen FC3 up 84% in (unit) sales and up to #2 in the UK Christmas chart, just behind BLOPS 2. Despite the rise in sales I really don't like to see a title discounted so heavily in only it's 4th week since release and fuels my worried about Far Cry 3 sales (in the UK at least). The same sort of discounting isn't happening in the rest of the world so maybe it's a true retail promotion but I can't help thinking that Ubisoft must be paying for some or all of the discounts in the UK.

Looking around the charts that are out then Ubisoft is really well represented with Far Cry 3, Assassin's Creed 3 and Just Dance 4 all featuring heavily across Europe and their calendar Q4 market share may well be at an all time high.

tsanalysis's picture
With the last UK data for the

With the last UK data for the year now in, here are my estimates for ACIII and FC3.

From launch through end of the year I estimate ACIII sold 828,000 units in the UK, compared to 735,000 units for ACR, an increase of 12.6% yoy. In the month of November I estimate ACIII sold 562,000 units compared to 299,000 units for ACR, an increase of 88% yoy. In the month of December I estimate ACIII sold 266,000 units compared to 436,000 units for ACR, a decrease of 39% yoy. These numbers are different than in my previous post because in that post I made November a 5 week month and December a 4 week month. In this post I made November 4 weeks and December 5 weeks to agree with NPD. Doing that, ACIII's +88% in November is a little closer to the strength that was seen in the November NPD data. Now to wait for the December NPD data to see if the December decline seen in the UK data happened in the US as well.

Now for FC3. I estimate FC3 sold 562,000 units during the 5 weeks it was on sale in 2012. For comparison ACIII sold 616,000 units in its first 5 weeks. So FC3 sold only 8.8% fewer units than ACIII in its first 5 weeks. That strikes me as a really remarkable performance, even given the heavy discounting you mentioned.

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darrens's picture
Thanks for those numbers.

Thanks for those numbers.

However, before NPD data we should get a trading statement from Ubisoft because they normally issue a trading statement around Jan 8th (next Tuesday) and NPD isn't until Jan 10th (Thursday). Ubisoft's share price (and warrant price) has got itself stuck and it looks like everybody is waiting for their trading statement.

They're forecasting €740 - €800m revenue for the quarter ending December 31st and it looks to me like they should be comfortable around the top end.

darrens's picture
If previous years are

If previous years are anything to go by then a trading statement from Ubisoft could be imminent. Exane BNP Paribas have put out a note today saying they expect Ubisoft to beat their revenue forecast of €740 - €800m for the important Q3 quarter and record sales of €820m.

They base that on a sell-in of 11m units of AC3 and 4.5m units of FC3. Whilst I think the AC3 number seems reasonable, the FC3 number seems a bit of a stretch. Admittedly it is sell-in rather than sell-through but that number still seems at the upper end of what I would be expecting.

Tomorrow after the markets close is the best bet for a trading statement but it could come at any time.

darrens's picture
Nothing yet from Ubisoft in

Nothing yet from Ubisoft in terms of a trading statement. Last year was 10th January which was the 2nd Tuesday after the New Year, hence my thinking that they would issue a trading statement yesterday.

Natixis (who are very bullish on Ubisoft) made a statement yesterday saying they were (also) expecting a statement imminently which they expected to be positive. Slightly alarmingly, they quoted vgchartz almost as if vgchartz was like Charttrack or NPD and reporting actual sell-through. I've also followed the Ubisoft chat on Boursorama (as best as I can with google translate and some schoolboy French) and, again, vgchartz is oft quoted.

Whilst vgchartz is as good as we have it is probably important to note that they are guessing like we are. They don't have any insight or information over and above what is publicly available so their numbers should be seen in that context. It was therefore a little odd to see Natixis quoting vgchartz sales figures for AC3 (+56%), Far Cry 3 (+227%) and Just Dance 4 (-32%) as if those were actual sell-through numbers.

Getting back to Ubisoft's trading statement then it is worth noting that NPD report December US sales on Thursday and they are unlikely to be especially good. Gamestop have already lifted the lid on a December which is going to be down on last year so I suppose Ubisoft have to give some thought as to whether they should issue their trading statement before, after or at the same time as NPD give us the bad news.

If they stick to the 10th of January like last year then we will get Ubisoft's trading statement as the same time as NPD numbers. Depending on what Ubisoft have to say, they may wish to avoid issuing a trading statement at the same time.


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