Ubisoft after the results

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tsanalysis
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Yes. Here's a chart of how

Yes. Here's a chart of how they've traded since being issued:

http://www.euronext.com/trader/summarizedmarket/stocks-2593-EN-FR0011229...

They started at around .10 euros when first issued, quickly dropped as low as .016 euros, and have since seemed to settle around .027 euros, which is where I bought. It is 11 warrants for each share, as you said. So in effect I paid approximately .30 euros for the right to buy one Ubisoft share at 7 euros by October 10, 2013. I do not plan to exercise the warrants however, just sell them again.

I liked the warrants because my concerns about Ubisoft still remain so I did not want to put a lot of money into shares. This way I was able to put just a small amount into the warrants, with my risk limited to how much I put in. But if Ubisoft does do really well on the back of ACIII, the warrants value could increase many-fold.

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darrens
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Thanks for that, I've

Thanks for that, I've actually been looking at these warrants and agree that they could be a good way to get in because their exercise date is so far off. I'm normally put off options because the far dated ones are too expensive and the near ones aren't that attractive to somebody like me who has a ltbh mentality.

But with these it's different so I'm trying to agree terms with my s/bet company for me to hold them as a spread bet.

tsanalysis
tsanalysis's picture
That is the same with me. I

That is the same with me. I usually find long term options to be too expensive and shorter term options too much of a gamble. Warrants often seem to be less expensive than equivalent options for some reason. Plus it is my hunch that when companies issue warrants, especially like this when they are given to existing shareholders for free, they choose to do so at a time when they believe the company is entering a strong period operationally. This is just my feeling, I have not read any studies which confirm this. However, the company does not raise any capital if the shares do not close above the strike price by expiration and people exercise the warrants. Just as one example, the last time Ubisoft did this in May 2003 the stock increased 280% from when the warrants were issued to expiration in May 2006.

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darrens
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I've been busy reading all

I've been busy reading all the beta impressions and previews about GRFS over the past week or so. I have to say that it's difficult to reach a conclusion on how well this will sell although I am convinced that it will be a game of high quality. It will definitely sell well to the hard core squad players out there, I'm pretty sure about that.

What I'm less convinced about is whether it will penetrate into the mass-market of COD/Battlefield players. The gameplay clearly leans more towards them than in previous Ghost Recon games but whether or not it will be able to convert any of them I'm not sure. There appears to be a limit of 4 person teams and it's more tactics less action than the cod/battlefield players will be used to. It may also be competing against Max Payne 3 multi-player which appears to be very strong and more action oriented so it could appeal more to the casual player.

It's just impossible to judge whether or not that is going to attract those people and it will be some time before that becomes clear because if it does happen it won't happen instantaneously.

So, I think it will be a good seller for Ubisoft but whether or not it can be a breakout hit with long legs I think we're just going to have to wait and see.

I'm sure it will sell better than Call of Juarez though (last year's title in the same period).

tsanalysis
tsanalysis's picture
Ubisoft picked up The

Ubisoft picked up The Avengers license for consoles from THQ it looks like. Umm.... I'm not too sure about this. This game is being made for Kinect and Wii-U, the former I think is already in decline and the latter I think will get off to a very slow start. Not to mention by the time it comes out it will be well past the excitement from the movie. Please just focus on your hits Ubisoft and have some good news during earnings and E3 so I can make some money on my warrants!

http://www.gamasutra.com/view/news/170122/Ubisoft_picks_up_Avengers_lice...

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darrens
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Hopefully they got this in

Hopefully they got this in THQ's fire-sale so will have picked up the licence/game assets for very little. However, I still can't really see the point unless they have an in house development team with nothing to do.

I'm not sure that earnings are going to bring any pleasant surprises (apart from hopefully making numbers) although we should get forecasts. I'm not sure there's anything to get especially excited about until we get closer to AC3.

tsanalysis
tsanalysis's picture
Ubisoft's earnings call

Ubisoft's earnings call allayed most of my fears.

I was worried about decline of dance games. Ubisoft said they have modeled a material decline in the Just Dance franchise in their guidance even though they think they can still do better than that.

I was worried about Ghost Recon Future Soldier's sales. Ubisoft said Future Soldier needed 2.5-3 million units to break even and their guidance for Q1 seems to assume lower sales than that. I think those are reasonable assumptions.

I was worried about Ubisoft's shotgun approach release schedule. Ubisoft seems to have eliminated most of their console shovelware which was my main concern. I think digital/online releases with strong community, stuff like Trials Evolution, HOWRSE, The Settlers Online, Silent Hunter Online, Trackmania are good bets and likely to contribute to profits.

It looks to me like Ubisoft should not have much trouble reaching their Q1 guidance of EUR 115 million ($150 million). After that it looks like a fairly clear road to the run-up to AC III (Q2 earnings won't be released until after AC III's release), unless Far Cry 3 really flops.

What were your thoughts on earnings/guidance and were you able to trade the warrants at your spreadbet firm?

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darrens
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I thought Ubisoft's results

I thought Ubisoft's results were solid without being spectacular but far better than their share price would indicate. They seem to be improving their net margins although not improving their top line quite as solidly. Looking at the numbers then I agree that they have eliminated a lot of the console shovelware and that's probably why their net margins have improved.

Their console offering is getting thinned down to big triple-A titles and all the shotgun stuff is now in the digital/casual arena where costs are far lower.

Howrse took me a bit by surprise because I didn't even know they were involved in it. I'm still not sure if they have bought Owlinet or if they're just "working together".

Throw it all together though and I remain positive about Ubisoft, particularly at the kind of prices we're talking about. AC3 remains, for me, the biggest factor for Ubisoft. I'd be surprised if they were forecasting 10m units of AC3 - that seems high given their revenue forecast number. I'm also surprised that they said they have given guidance which would show GRFS making a loss. That just seems weird although the Q1 forecast number did seem very low so maybe they really did. I'd certainly hope that they could beat that Q1 forecast number.

The biggest blot on the landscape is Wii sales and the knock-on for Just Dance. I've always been a bit dismissive of JD because margins are so thin and rrp is so low but there's still no denying that the whole Wii market is dying very quickly. By the time JD4 comes out it may be that the Wii is just a legacy system and that is going to leave a hole in their finances. However, the main hole would, I think, be in revenue rather than profits.

My s/bet firm did let me buy warrants as a one-off exception and I've been accumulating them in the high 20s since I think they are fantastic way to get huge Ubisoft upside exposure for very little downside (if you believe Ubi are going up from here). I'd got to about 60% of my target before the pop today (very thin volumes in the warrants) but I'll probably keep accumulating until I hit my targets.

I certainly owe you one for those warrants because I'd pretty much ignored them until you made me look at them properly so, whatever happens, thanks for that.

tsanalysis
tsanalysis's picture
Well I probably wouldn't have

Well I probably wouldn't have looked at Ubisoft seriously enough to get into it or be aware of the warrants if you hadn't started the discussion and made me aware of some of the positive changes occurring with Ubisoft's fundamentals (I had always thought of them as that company with some great hits but which never seemed to make as much profits as they should), so I'd say we're even.

I might go for some more warrants as well if there is a little bit of a pull-back, so hopefully we both get our full targets before Ubisoft goes any higher.

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darrens
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First review I've seen for

First review I've seen for GRFS - 88% from Gamesmaster. For context they gave Max Payne 3 - 90%, Dragon Dogma - 84% and Risen 2 - 80%.

Full list of scores here

tsanalysis
tsanalysis's picture
Some rumors floating around

Some rumors floating around that Brothers in Arms Furious 4 may have been cancelled. If true, I think it is the right move. I had serious doubts this game would break-even, much less break-out.

After what I have seen with Max Payne 3, I am having more serious concerns about Ghost Recon and Far Cry 3 as well. Maybe there are a few hurdles to clear still after all before AC III.

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darrens
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I saw those rumours and

I saw those rumours and thought that, if true, then it's good news. Okay, there will be a write-off but that seemed to be the kind of game that we thought didn't make sense for Ubi and they were suggesting in their results would be a thing of the past.

I'm reasonably bullish about GRFS, pending the reviews. Far Cry 3 I feel less confident about. Perhaps I'm missing something but it's a genre which is dominated by COD/Battlefield and there just isn't a market for me-too titles any more.

tsanalysis
tsanalysis's picture
Just to answer a question

Just to answer a question from one of your prior posts, Ubisoft bought Owlient:

http://www.gamesindustry.biz/articles/2011-07-12-ubisoft-buys-free-to-pl...

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darrens
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Thanks. For some reasons I

Thanks. For some reasons I couldn't find that through google. Must. Try. Harder.

I probably thought Ubisoft were a bit crazy at the time and should have concentrated on their core offering but in retrospect maybe it was a good move. Difficult to be sure without numbers.

darrens
darrens's picture
8.5/10 from Goldengames.

8.5/10 from Goldengames. Unfortunately it looks like their site is broken, and they've broken the embargo so not sure whether that's official or not. In case it starts working here's the link.

http://golden4games.com/en/report/review/30834-ghost-recon-future-soldie...

darrens
darrens's picture
As I sit here wondering what,

As I sit here wondering what, if anything, Take Two are going to say about GTAV today I've suddenly realised that I've stupidly not identified the biggest threat to Ubisoft.

If GTAV does come out October this year then it is going to massively impact AC3 sales. I can't believe (given I follow both Ubi and Take Two very closely) how stupid I've been to not notice that before.

I wonder if Ubi would know for sure. I suspect not. But if GTAV is announced for October then that is going to give them a massive problem and, whatever they do, it will negatively impact them.

darrens
darrens's picture
GRFS review embargo lifted

GRFS review embargo lifted and currently on a metacritic of 77 with the main criticism being that it has lost its personality and become a bit too much like COD. Funnily enough, that may not be a bad thing when it comes to sales.

queeny2
Nothing to say

except I've rejoined. Will browse around UBI and TTWO, the only two I really know anything about, and I'm sadly out of date (2 or 3 years).

The whole sector seems to have done what I always thought it would, die slowly and never generate a penny for shareholders even if they have bumper year, just plough back into franchises and pay people and try and generate new franchises with the cash from old ones, and then do it all again, with development costs rising in an arms race. But I'm a whinger as you know Darren.

OT, but one company i forgot to mention to you the other day that I'm short of is CAR in UK, Carclo. Nothing to do with games, but tech. Trades where it does because they've invented a fabulous new touch-screen material which may become the industry standard in 2013 so long as no-one else has realised what's happening like Samsung and so on, and have to trek to Yorkshire and buy from a small UK company. They have an exclusive with ATML (good for sales and market access, but bad for margins). If that interests anyone here I can direct to relevant research etc. Results etc in June sometime plus update on ATML relationship. Taciturn bunch. Good company, wrong price imho.

tsanalysis
tsanalysis's picture
Early days still, but

Early days still, but according to one data point Future Soldier appears to be faring better than Max Payne 3 (at least on XBox 360). Ghost Recon has 56,000 reviews on XBox.com, vs 29,000 for Max Payne 3:

http://marketplace.xbox.com/en-US/Product/Ghost-Recon-Future-Soldier/66a...

http://marketplace.xbox.com/en-US/Product/Max-Payne-3/66acd000-77fe-1000...

Max Payne 3 appears stronger on PS3 however. May NPD should be interesting. I think Max 3 sold better overall because of better PS3 sales, but if Future Soldier's multi-player can give it longer legs it may catch up a little bit over time.

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darrens
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I'm trying to work out what

I'm trying to work out what happened today about an hour into trading to drop Ubisoft by nearly 6%. It may have been normal trading but I'm wondering if it was downgraded or something.

GRFS seems to have started off okay as far as I can gather. It isn't lighting up the tills but it seems like it's off to a fairly solid start.

The biggest risk to Ubi that I can see at the moment is GTAV being announced in the AC3 window. I'm sitting on my hands until then but the options are down to 23c and that's very tempting.

tsanalysis
tsanalysis's picture
I was wondering the same but

I was wondering the same but couldn't find any news. Volume was unusually heavy today, though. I am waiting before adding as well. If GTA V were to launch in the AC3 window when do you think is the latest it would be announced?

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darrens
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That's a question being hotly

That's a question being hotly debated by the Take Two crowd. I would guess June but it wouldn't be impossible that they would announce it in September for a late October/November launch.

darrens
darrens's picture
Just having a closer look at

Just having a closer look at Ubisoft weakness to see if I can spot anything. Q1 forecast is for sales of €115m against €103m that they did last year. Last year catalog was €68m from AC: Brotherhood and the Dance titles and the new releases were Child of Eden and Michael Jackson for Kinect.

I would imagine catalog is going to be lower just because of the overall market but obviously GRFS is going to sell a lot more than the new titles for the year before.

Put it all together and I would say they are pretty much on track looking at the first week sales of GRFS. I guess the only thing to note is that the 360 version is selling stronger but for Europe (except the UK), PS3 is the dominant platform. So, selling stronger for the weaker platform and selling weaker for the stronger platform may be affecting sentiment. Not sure.

UK

01 (NE) [360] Tom Clancy's Ghost Recon: Future Soldier (Ubisoft)
02 (02) [360] Max Payne 3 (Take 2)
03 (03) [PS3] Max Payne 3 (Take 2)
04 (NE) [PS3] Tom Clancy's Ghost Recon: Future Soldier (Ubisoft)
05 (NE) [360] Dragon's Dogma (Capcom)

Germany

01 (01) [PCD] Diablo III (Activision Blizzard)
02 (02) [PS3] Max Payne 3 (Take-Two Interactive)
03 (NE) [360] Tom Clancy's Ghost Recon: Future Soldier (Ubisoft)
04 (05) [PS3] Uncharted 3 - Drake's Deception (Sony Computer Entertainment)
05 (NE) [PS3] Dragon's Dogma (Capcom Europe)
06 (NE) [PS3] Tom Clancy's Ghost Recon: Future Soldier (Ubisoft)

Sweden

01 (01) [PCD] Diablo III (Activision Blizzard)
02 (NE) [360] Ghost Recon Future Soldier (Ubisoft)
03 (02) [PS3] Max Payne 3 (2k Games)
04 (03) [360] Max Payne 3 (2k Games)
05 (NE) [PS3] Ghost Recon Future Soldier (Ubisoft)

Norway

01 (NE) [PCD] Diablo Iii (Activision Blizzard)
02 (NE) [PS3] Max Payne 3 Nordic Edition (2k Games)
03 (NE) [360] Max Payne 3 Nordic Edition (2k Games)
04 (NE) [PCD] Diablo Iii (Activision Blizzard)
05 (NE) [PS3] Dragon's Dogma (Capcom)
06 (NE) [360] Ghost Recon Future Soldier Signature Edition (Ubisoft)
07 (NE) [360] Ghost Recon Future Soldier (Ubisoft)
08 (NE) [PS3] Ghost Recon Future Soldier Signature Edition (Ubisoft)
09 (NE) [PS3] Ghost Recon Future Soldier (Ubisoft)

Netherlands

1 DIABLO 3 (PC) ACTIVISION BLIZZARD
2 MAX PAYNE 3 (PS3) TAKE - TWO INTERACTIVE
3 MAX PAYNE 3 (XBOX 360) TAKE - TWO INTERACTIVE
4 TOM CLANCY GHOST RECON/FUTURE SOLDIER (XBOX 360) UBISOFT
5 TOM CLANCY GHOST RECON/FUTURE SOLDIER (PS3) UBISOFT

France/Italy are a week behind.

tsanalysis
tsanalysis's picture
Ghost Recon seems to be

Ghost Recon seems to be tracking slightly behind Max Payne overall (slightly stronger on 360, weaker on PS3). However Ubisoft appears to have a much lower break-even level with Ghost Recon than TTWO has with Max Payne.

Ubisoft appears to be holding up better than the other major publishers (namely TTWO and EA), so same question (specifically aimed towards the warrants) - time to buy (more)?

By the way, just a sort of interesting observation I made on the premiums for the warrants. Ubisoft is currently around 5.3 Euros, the warrants have a strike price of 7 Euros, and expiration is October 2013. A roughly equivalent option can be found in the Jan 2014 calls in TTWO. TTWO is trading around $11 (roughly double Ubisoft's share price in Euros), so the equivalent strike price would be around $14. There are no $14 strike price Jan 2014 calls, but there are $13 and $15 strike price calls. The mid-point of the premiums for those two strike prices is around $1.61. So, you are paying a premium equivalent to roughly 15% of the current share price ($1.61/$11) for the right to buy TTWO at a price 27% above the current share price up until January 2014.

Now with Ubisoft you need 11 warrants to purchase one share. The warrants are currently trading around .02 Euros. So to buy one share you need to buy 11 warrants, at a cost of around .22 Euros. So with Ubisoft you are paying a premium equivalent to roughly 4% of the current share price (.22/5.3 Euros) for the right to buy Ubisoft at a price 32% above the current share price until October 2013. You get three fewer months with the Ubisoft warrants, and the strike price is slightly higher percentage-wise, but the premium for the Ubisoft warrants is much, much less (4% vs 15%).

By the way, you said you were able to buy the warrants in your spread-bet account as a one time exception. So you actually bought the warrants themselves instead of placing a spread bet on the warrants? So you have currency exchange rate risks on them now, right? Actually, that would be an argument in favor of buying right now since the Euro has been down vs the dollar/pound.

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darrens
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My "bet" was converted into

My "bet" was converted into sterling as soon as the deal as done so I don't actually have any forex exposure since my bet ends up a £ per eurocent.

I'm actually away at the moment but couldn't help notice the super-hype that Watch Dogs as generated. It's already being talked about as game of the show which is a bit daft but there's no denying the excitement it has generated.

Assassin's Creed 3 and Far Cry 3 also appear to have been very well received although Splinter Cell: Blacklist wasn't.

I remain concerned about the GTAV release date and the fact that the industry seems to be in real trouble but Ubisoft are really seem to be doing a good job of going for the "dumbell" approach, ie. loads of cheapie stuff and some huge triple-A titles.

tsanalysis
tsanalysis's picture
I was very impressed overall

I was very impressed overall with Ubisoft's E3 conference. I was watching it live and when I saw Watch_Dogs I was amazed. It was the highlight of all the conferences for me, thus far.

As you know, I like to monitor the Amazon charts for reactions after major reveals (for products which are available for order). Luckily, Amazon has a handy tool which makes doing just that easy, their "movers and shakers" list, which shows the products with the biggest gains in rankings in the last 24 hours:

http://www.amazon.com/gp/movers-and-shakers/videogames/

Splinter Cell Blacklist tops the list, although that is a bit deceptive since it appears it just became available for order on Amazon. AC III is also near the top of the movers and shakers list and jumped back into the top 50 in the overall rankings, a good sign. Far Cry 3 is nowhere on the movers and shakers list and is still around #500-600 overall so I am not seeing the kind of reaction from its conference presentation yet to lead me to think it will be other than a disappointment.

It is kind of interesting to look at the movers and shakers list for the games which were featured in the conferences and see which ones received bumps and which ones did not.

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darrens
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The general consensus so far

The general consensus so far appears to be that Ubisoft "won" E3. I've been to a few shows in the past year or so where Ubisoft presented and they always do a very good job. The quality of their presentations and their trailers is always up there with the best and I am always impressed.

However, I also come away with the horrible feeling that they've thrown a lot of money at these things and I wonder if they can recoup it. I hate to be a wet blanket but Ubisoft often wow the specialist gaming audience but that doesn't always translate to sales with the game buying public. Beyond Good and Evil is the poster child for what I'm talking about.

So, I don't think "winning" E3 is worth all that much, especially since they won it with trailers and presentations rather than hands-on gameplay. I'm not trying to be a killjoy here but given that they seem to have hit the ball out of the park at E3 (so far) I think it's important to keep perspective.

It's obviously better than being ignored, and I'm especially happy with the reception that the new AC3 trailer is getting, but things like heavily supporting the Wii U at launch is a tactic which gets them a lot of attention and plaudits but it does feel slightly more vanity than sanity.

I've been talking up Ubi for a while (at these prices) so I don't want to appear to be contrary for the sake of it but, for me, the focus is on the state of the industry and when GTAV is going to launch.

tsanalysis
tsanalysis's picture
I think you are right to be

I think you are right to be cautious and to distinguish between putting on a good show for specialist press and having games which will sell well to the mass market. But this time I honestly think Ubisoft showed a lineup of games which will translate to good sales (relative to the overall state of the industry).

To make the distinction why I feel this way more clear, I will contrast my reactions to their E3 showing this year versus last year.

- Last year I looked at the games they showed and thought to myself on most of them, uh-oh, these aren't going to do well. Rayman Origins? Platformers are a dead niche. Driver: San Francisco? A generic looking racing game. Far Cry 3? Another shooter which doesn't really stand out in any way. Brothers in Arms Furious 4? Ugggghhhh... not another WWII shooter! We discussed the rumor that this game was cancelled, which we both thought was the right move. The Adventures of TinTin? Licensed kiddie movie games on consoles were already dead. Ghost Recon Future Soldier? OK, this one looked decent. Not sure it would be a break-out hit, but it looked decent. A Rabbids game on Kinect? Rocksmith? Both too niche to make a difference. Assassin's Creed Revelations? It looked like the franchise was getting a little tired, which according to reviews at least, turned out to be the case.

See what I mean? Now this was my reaction to their E3 show this year:

- Far Cry 3? It looked nice and it seemed like they were trying really hard to make it stand out but honestly I still didn't see what made this a must buy game for anyone. Splinter Cell Blacklist? I actually liked what I saw. Sort of similar to my reaction to Future Soldier last year, it didn't look like it had break-out potential but I thought it looked solid enough. Marvel Avengers? Meh... hopefully they picked up the license for cheap like you said. Rayman Legends? This is where I started to get the Wii U. Seeing the gameplay I actually got the appeal of asymetric gameplay. The one player playing on the tablet, swiping to cut ropes and drop bridges for the other players to cross levels with... I thought Ubisoft showed off the potential of this kind of gameplay better than anything Nintendo showed at their press conference. Zombi U? They just showed a cinematic trailer during their press conference but from what I subsequently saw during Nintendo's press conference of the game, I again thought Ubisoft did a better job showing off the potential of Wii U than anything else shown from either third or first party. The uses shown for the Wii U Gamepad in Zombie U were really cool... hacking the door keypad while the TV screen showed a behind your back view of zombies closing in on you... using the Gamepad as the scope on a sniper rifle, using the motion sensing in the gamepad for finishing moves, those were all really cool uses of the Gamepad, I thought. In contrast to the other third party games shown at Nintendo's press conference... Darksiders II and Mass Effect 3 didn't look like they used the Gamepad at all. Even Batman Arkham City looked like it was mostly just using the Gamepad as an inventory screen. Yeah you could use it to fly the remote controlled batarang and as a scanner, but I don't know, it just didn't seem that novel to me. I think Zombie U could be one of the best selling launch games for Wii U. OK, then more Wii U games shown... a Rabbids game, Your Shape, Sports Connection. Whatever, kind of more shovelware type games, but at least they are for the launch of a new console instead of on a declining system. AC III? What need I say? It looks awesome and a new high mark for the series instead of the rather tired looking AC Revelations last year. Next they show Shootmania and some more PC/free to play games. Like we said, at least they are focusing their shotgun approach on the markets where it stands a chance to succeed. And then finally Watch Dogs. It blew me away but I won't repeat the hype. But it does look like a game which could appeal to a mass audience. It looked to me like GTA meets Splinter Cell meets Assassin's Creed.

So overall, I thought much much better this year, and not just from a specialist press viewpoint but from a mass market sales potential standpoint. I thought this year they showed bigger hits with bigger potential (AC III, Watch Dogs vs AC Revelations), fewer potential expensive AAA flops (yeah I still have doubts about Far Cry 3, but that is better than Call of Juarez, Driver SF and Brothers in Arms Furious Four), and lesser tier games which appear much better positioned this year (Zombie U, and "shovelware" at least aimed towards a new console and PC/free to play instead of Wii). Oh, and Ubisoft's CEO said that games developed for Wii U can be leveraged for smartphones/tablets which is something I hadn't really thought of before but which makes sense. Splinter Cell Blacklist vs Ghost Recon Future Soldier looks pretty even to me, and Just Dance I think will be down but at least they are modeling for that and perhaps with a Wii U version that will help offset the decline in Wii.

http://www.gamesindustry.biz/articles/2012-06-04-ubisoft-to-port-wii-u-t...

Of course as you said the release date of GTA V and overall industry health remain concerns but for the things under Ubisoft's control at least, it looks like they are doing a better job.

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tsanalysis
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One more announcement from

One more announcement from Ubisoft: Just Dance Disney Party to be released this October. With a second Just Dance title, that may go a long way towards making up for the decline expected this year.

I have to go back and look at Ubisoft's revenue guidance for this year again, but didn't we break it down and conclude that it appeared conservative? With a second Just Dance title this holiday, Ubisoft's WiiU games looking better than I expected, and ACIII looking like the real deal, Ubisoft appears in good shape.

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tsanalysis
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Gamespot's Best of E3 Editors

Gamespot's Best of E3 Editors' Choice Awards:

http://www.gamespot.com/special-feature/best-of-e3-2012-edit/

Four Ubisoft games were chosen - Assassin's Creed III, Rayman Legends, Watch Dogs, and Splinter Cell Blacklist. Four games out of twelve total. Impressive.

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darrens
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Tony, I was already a convert

Tony, I was already a convert to Ubisoft so I'm probably starting off at a different place. I was already excited about AC3 being the real deal and if you look at a this year/last year comparison of their line-up (I did it briefly in post #89) then it just looked like they had significantly upped the quality (and sales potential) across the board. Except with Just Dance which is almost certainly going to be weaker (they had Just Dance kids last year). However, as I keep saying I think the Just Dance series has been nice but because of thin margins it has always been more icing than cake.

So, E3 is great for the feel-good factor and it's nice to see all the "Ubisoft wins E3" type comments but it hasn't actually change my view of Ubisoft given I was already very warm towards them.

Just on one specific - my reason for being slightly disappointed with Splinter Cell was that it seems to have continued the move away from stealth towards action and that seems to make it a lot more generic. Perhaps they feel there is a bigger market in the action (vs stealth) genre but it's also a lot more crowded market.

However, put it all together and Ubisoft is a must buy....unless this cycle is dead and/or GTAV comes out the same time as AC3.

tsanalysis
tsanalysis's picture
I guess I have always been

I guess I have always been just so skeptical about Ubisoft and their shotgun approach that even knowing most of their planned release slate heading into E3, I was still expecting some negative surprises or lack of focus. So I ended up especially impressed with what was shown and especially by the focus. Ubisoft has always had hits... they have had hits for years. They just didn't have the focus and had too much shovelware offsetting the hits. Now they finally seem to be really turning the corner in that regard.

And they are going after mobile and free to play aggressively. I saw another Ubisoft interview where they said ZombiU could go multi-platform. With Microsoft's "Smart Glass" initiative, I can easily see how WiiU games could be ported to the 360/SmartGlass combo. With Ubisoft's WiiU games looking better than I had thought, plus the possibility of leveraging development costs on those games by porting them over to smartphones/tablets/360/SmartGlass, Ubisoft's heavy support of Wii U makes more sense to me now.

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Well another Ubisoft post,

Well another Ubisoft post, but I just noticed that Ghost Recon Future Soldier finally broke into the top 100 best selling games of 2012 list on Amazon. The 360 version is currently at #98:

http://www.amazon.com/best-sellers-of-2012-for-video-games/#5

I was wondering if either Future Soldier or Max Payne would ever make the list. Neither version of Max Payne 3 has made the list yet. I'm not saying I think Future Soldier outsold Max Payne 3 in May, but the 360 version at least appears to be showing better legs than Max Payne 3 still. Future Soldier is higher on every online best-selling list I check (Amazon, Gamestop, BestBuy and Walmart) and also has more ratings on XBox.com.

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Why not one more post.

Why not one more post. Interesting blog post on Ubisoft I found. You can use google translate on it but basically the author likes Ubisoft now because of:

1) rising sales
2) weak Euro will improve performance
3) earnings estimates are going up
4) low valuation

Original article:
http://bourse.blogs.challenges.fr/archive/2012/06/07/ubisoft-une-valeur-...

Google translation:
http://translate.google.com/translate?sl=fr&tl=en&js=n&prev=_t&hl=en&ie=...

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Well, I can't say that I'm

Well, I can't say that I'm all that pleased with Ghost Recon Future Soldier's May NPD sales either, but perhaps the lone bright spot is that it appears that Future Soldier may have outsold Max Payne on 360, based on the order in Microsoft's PR. Also, according to XBox Live user activity, Future Soldier ranked higher than Max Payne during the week of June 4th. So I think Future Soldier will have better legs than Max 3. It would not surprise me to see Future Soldier outsell Max 3 in June.

http://majornelson.com/2012/06/13/live-activity-for-week-of-june-4th/

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darrens
darrens's picture
Very low volumes today on

Very low volumes today on Ubisoft but, rather surprisingly, they aren't dropping. Not sure if that's because the bad NPD data was already in the price or if most of the volume comes from the US markets which are just waking up.

Without numbers it's hard to say much about GRFS performance in the US because it could have done 400k (which would be okay for week 1 sales)....or it could have done 150k (which wouldn't).

UPDATE: apparently GRFS sold just over 400k units which isn't so bad given I think that only includes 5 day sales (launched 22nd, NPD cut-off 26th May).

I suppose the good news for Ubisoft is that they have bets on lots of other stuff except this console generation but, the bad news, is that Farcry 3 and even AC3 must be looking very weak simply because nothing is selling except PC only dungeon crawlers! I remain of the view that AC3 is critical and it looks like they are doing a fantastic job...but it may be a year too late.

*gulp*

tsanalysis
tsanalysis's picture
I was just looking at Q1

I was just looking at Q1 sales guidance again in light of the latest info we have. Guidance was for sales of 115 million Euros.

We know that Ghost Recon sold 400,000 units in the US in 5 days and was #1 on the UK charts for three straight weeks. It seems safe to assume that Ghost Recon will have sold through a fair bit over 1 million units worldwide by end of June. With that kind of sell-through, 2 million units shipped-in for the quarter seems reasonable.

Trials Evolution looks like it will have sold around 700,000 copies on XBLA by end of the quarter. At $15 a piece that is $10.5 million minus 30% cut for Microsoft is roughly $7 million.

Besides Ghost Recon and Trials Evolution, Ubisoft had 7 other packaged goods releases and 16 other digital releases in the quarter. Most of those are 3DS "shovelware" or mobile/social apps so not a lot of revenue, but taken together they might amount to something.

Lastly in Q1 of last year Ubisoft had 68 million Euro in catalog sales, which they said were led by Assassin's Creed and dance titles. Of course this year we know that sales for the big holiday games were much more front end loaded with sharp drop offs after the first few weeks. We also know that Wii hardware sales in particular have dropped off significantly. On the bright side, Just Dance 3 was still the #1 Wii game in units sold in May as well as in units sold over the trailing twelve months (see http://www.nintendo.com/games). But overall I'd expect that catalog sales should be down significantly from last year. Still, how much lower? Even 50% lower would still mean roughly 30 million Euro in catalog sales.

Take it all together - Ghost Recon ship-in, Trials Evolution sales, other new packaged goods ship-in and digital releases, and catalog sales, using whatever you deem are conservative estimates, and that still seems to handily beat their 115 million Euro guidance, doesn't it? Ubisoft only reports sales for Q1, not earnings. They also provide Q2 sales guidance and update their full year sales and operating income guidance. I think they should beat on Q1 sales and I do not see any reason for them to adjust their full year targets downward at this point, so reaction to the Q1 release should be positive I think. Or perhaps, as you alluded to, it will be a non-event with investors most concerned about AC3.

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darrens
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I pretty much agree that they

I pretty much agree that they should be comfortable on Q1. I always like to do a this year/last year comparison and last year they achieved €103m on (as you say) €68m of back catalogue, €22.5m (calculated) of MJ Experience for Kinect and Child of Eden and €12.5m for on-line.

Take off 40% for back catalogue and you have €41m, GRFS 2m shipped should be around €70m (€35/unit do distributors sound about right?), and that pretty much gets you there before you add in the other stuff.

I'm with you in that I think they'll leave full year targets where they are and I would expect a neutral reaction to the results. Ubisoft share price hasn't been so badly affected by the awful industry numbers which may be because of their great E3, may be because they're seen as pioneering in new business models or may just simply be that the share price was already shot to pieces.

They are on a forward p/e of 6 vs EA 11, ATVI 12.

tsanalysis
tsanalysis's picture
Far Cry 3 pushed to end of

Far Cry 3 pushed to end of November/early December:

http://www.ubisoftgroup.com/en-US/press/detail.aspx?cid=tcm:99-55905-16&...

I was already doubtful about Far Cry 3's sales potential and I don't think this new release window does it any favors. Ubisoft did reaffirm its 2012-2013 guidance but the September quarter will be lighter than what it would have been before (although the company had not given September quarter guidance previously).

Also, just when I have started praising Ubisoft for eliminating a lot of shovelware, I see this. I know it is just a XBLA/PSN title, but did the world really need this game?

http://www.cinemablend.com/games/Expendables-2-Videogame-Footage-Bad-Rea...

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Darren, how did you arrive at

Darren, how did you arrive at the 80 million Euro earnings estimate for Ubisoft in your "publisher valuations" post and is that an apples-to-apples comparison with the EPS figures you list for the other publishers?

Ubisoft's Q4 report gave guidance for 2012-2013 of an increase between 25% and 61% in current operating income (which was 56 million Euros in 2011-2012). 25%-61% increase gives a range of 70 million to 90 million Euros, so I assume that's where you got the 80 million Euro figure from - the midpoint. However that is operating income, not net income, so it is not the same as the EPS estimates and thus P/E ratios you list for the other publishers, is it?

Ubisoft's net income in 2011-2012 was nearly 20 million Euros less than their current operating income. If I make the admittedly simplistic assumption that 2012-2013 net income is also roughly 20 million Euros less than current operating income, then 2012-2013 net income would be around 60 million Euros at the midpoint, resulting in a forward P/E ratio of 8.2, not the 6.15 you calculated.

http://common.ubisoftgroup.com/en-US/images/Ubisoft%20FY12%20English%20f...

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darrens
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No idea what they're doing

No idea what they're doing with Expendables but I'm assuming they spent nothing on it and it's just right at one of the dumbbell. Not too bothered about that.

Far Cry 3 I'm far less happy about. I can't see any silver lining and that, for me, is being sent to die. I know I said the same thing about Saints Row the Third and was wrong but that hasn't changed my view about releasing these sort of games into the holiday crush.

darrens
darrens's picture
I must confess I've always

I must confess I've always struggled to understand Ubisoft's various definitions and which one is the right one to compare it with the non-GAAP figures from the US publishers.

The €37m net income they reported last year was after stock based compensation and also after tax and also after their financal costs (actually a profit of €2m). It's all on page 8 of that report you linked to above.

I thought the non-GAAP figures I'm using for the US stocks exclude stock based compensation and also exclude tax. Am I wrong in that? If I'm right then we should be using what Ubisoft calls operating income, not net income.

Artheval_Pe
Far Cry 3 is a well

Far Cry 3 is a well-established franchise, so it should not really die, but it's definately going to underperform compared to what it would have done with a September release. If the game wasn't ready at all for a September release, it's probably for the best, though. Even if the sales aren't that high before the end of the year, if the game is really good, finishing it properly will give it a longer tail in the end.

Plus, looking at november, there are only two big multiplatform action games releasing that month : Call of Duty Black Ops 2 (which will sell extremely well, but probably less than MW3 which sold less than Black Ops 1) and Hitman Absolution. Not that big of a deal if Ubisoft manages to maintain the hype around Far Cry 3 until its release. Halo 4 is also coming out but only on Xbox 360 and we have seen with Reach and ODST that the franchise wasn't nearly as popular as it was back in the days of Halo 2 and 3.

darrens
darrens's picture
Hi Artheval, welcome.

Hi Artheval, welcome.

Did you mean "underperform" compared to a September release or do you think it will sell better in that window than its original September window.

Artheval_Pe
I meant underperform. Pardon

I meant underperform. Pardon me, I'm french.

tsanalysis
tsanalysis's picture
Darren, good point about the

Darren, good point about the non-GAAP definitions the US publishers use. After taking a quick look at ATVI, EA and TTWO's non-GAAP definitions they all exclude stock based compensation and "income tax adjustments" but not income tax itself. ATVI and TTWO make no mention of excluding any financial income/expense from their non-GAAP measures although EA does mention it excludes gain/loss on strategic investments. Ubisoft's 8.5 million Euros in "other financial income" in 2011-2012 was from the sale of Gameloft shares, so I think those should be excluded.

So it appears to me that to arrive at a number to use for Ubisoft that is comparable to the non-GAAP measures of the US publishers we should start with their current operating income which excludes stock based compensation (so 56 million Euros) and subtract income tax (around 10.8 million Euros) so around 45 million Euros in 2011-2012. On this basis, and assuming for now similar taxes, it seems like the midpoint of Ubisoft's 2012-2013 guidance would result in a non-GAAP equivalent figure of around 70 million Euros, and a forward P/E of around 7. Does that seem right to you?

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Hi Artheval.

Hi Artheval.

You are right, November is kinda sparse, although Ubisoft's own AC III is near the very end of October. I don't know, the new date for Far Cry 3 (Dec 4th in the US) just seems not very good to me at all. A month after AC III? Two weeks after Black Ops 2? Also, releasing on Dec 4th they miss Black Friday (day after Thanksgiving) although that would have brought it even closer to Black Ops2/AC III. Some are saying why not push it back until 2013? But Q1 2013 is already looking packed as I noted, and we have seen that Q2 isn't particularly attractive either after the relative disappointments from Max 3 and Future Soldier. So no real good options, really. I guess beginning of December is the lesser of all evils. Far enough away from AC III and Black Ops 2, but at least they will still benefit from the last rush of sales leading into Christmas.

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darrens
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Artheval, no need to

Artheval, no need to apologise and it's really good to have somebody French here because you may be able to give us a really good perspective on Ubisoft and Gameloft.

I think September was a relatively safe window for Far Cry 3 and I would have expected reasonable if unspectacular sales. I think releasing it in November will polarise the sales - so it will either survive and do good numbers (cf Saints Row The Third) or just die. The fact that it is an fps and is released a couple of weeks after CoD and a week before Halo makes me suspect it will be more likely to die than surprise.

I still think (though) that the big thing for Ubisoft this year is whether GTAV is going to be released next to AC3. If it doesn't then I think AC3 will do really good numbers and, far and away, be Ubisoft's major profit contributor. However, if GTAV does get released against AC3 then that's really bad news for Ubi imho.

Tony, I'm going to have to free up some time and go through the non-GAAP accounting treatment but you may be right about tax. I thought it wasn't included in non-GAAP numbers but maybe it is in which case €70m for Ubi is a fairer comparison.

darrens
darrens's picture
I can't find an easy way to

I can't find an easy way to show these two on a chart but I'm slightly puzzled that Ubisoft shares don't show a particularly high correlation to Ubisoft warrants. I'm sure there's a good reason for this but I can't understand why they don't both have up/down days together.

tsanalysis
tsanalysis's picture
I have noticed the general

I have noticed the general lack of a high degree of correlation as well. Although when Ubisoft reported year end results in mid-May and Ubisoft's shares traded as high as 5.70-5.80 Euros, the warrants did jump as high as .039 Euros. Outside of that however, it does seem to me that the warrants often don't move as I think they will in response to Ubisoft's share movement.

I think the main reason is that the value of the warrants is largely composed of time value at this point, and compared to the call options on Ubisoft which are available for trade on the Euronext, the warrants are a good value so within the band that Ubisoft shares have been trading in since the warrants were issued (between around 5 and 5.50 Euros), the trading of the warrants have been more influenced by low liquidity and longer term sentiment. Although options traders are on the whole perhaps more short term oriented, I think with these particular warrants with the far out expiration and relatively low premiums, I think trading in them may be more dominated by those with a longer-term outlook, perhaps even more so than is the case with the common shares. I have noticed that the spreads on the warrants appear to have widened from .001 Euro to .002 Euro and even .003 Euro considering that the volume offered at the best bid/asks has often been minimal of late.

If/when Ubisoft shares break-out of the 5-5.50 Euro channel (either on the downside which could indicate a return to the lows of last October around 3.6 Euros, or to the upside which could indicate an uptrend which could take Ubisoft's shares closer to the warrants' 7 Euro strike price) then I would expect the warrants to move along with the underlying shares more, especially in the upside breakout scenario.

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