According to a recent announcement from Ubisoft, the French video game publisher expects to suffer a loss of 500 million euros for the 2022-23 financial year, against the 400 million euros in profits initially forecast. This news led to a 14% drop in Ubisoft's stock, which is facing economic and governance difficulties. Analysts point to the company's controversial investments in particular, as well as its recent reorganization and organic model. A survey that has just been published on the site by jeux-video.com. We offer you a summary of what we think is important to remember.
Ubisoft, the French video game publisher, expects to suffer a loss of 500 million euros for the 2022-23 financial year, against the 400 million euros in profits initially forecast. This announcement led to a 14% drop in Ubisoft's stock. The company cited a difficult economic climate as well as the underperformance of its big year-end games, Just Dance 2023 and Mario + The Rabbids Sparks of Hope. In addition, the choice to bet on free-to-play games did not bear fruit, and the postponements of Skull and Bones, Avatar: Frontiers of Pandora and Beyond Good & Evil 2 added to the uncertainty. . Ubisoft has experienced a series of alarming comments from financial analysts, some considering that this situation affects the credibility of the company vis-à-vis investors.
A threatening governance
Difficulties in terms of the economic model, but also of governance. The company has invested heavily in recent years, which constitutes a risk for shareholders if the turnover does not follow. Ubisoft has also made adjustments in terms of governance, but some observers deplore the lack of clear communication around this reorganization. In addition, the management team, which is mainly based on historical people of the company, has a problem of generational gap, according to analysts. While the company has doubled its committed capital over the past 5 years, observers are expecting opposite growth. Although the French firm has been forced to give additional time to the development of its many projects, it is more affected than its competitors because of its organic model.
controversial investments
Ubisoft has benefited from derogatory depreciation for more than 14 years, allowing it to deduct costs to pay less tax. Although this tax advantage is generally granted to start-ups and developing companies, Ubisoft, a mature company, practices this depreciation in a massive way up to 1,381 billion in the accounts.
Ubisoft's business model has been challenged as last year's losses led to negative cash. The company acknowledged that investors were concerned, but stressed that it had invested heavily in its employees, growing from 10 to 000 employees in eight years, and that its investments were made in cycles. In 20, the company embarked on an investment phase with an average increase of 000% in R&D per year. However, the health crisis has made this path more difficult than expected and the industry has faced the phenomenon of the great resignation. The losses for the year are partly explained by a difficult economic climate, but also by the very strong impact of past investment.
Ubisoft and Tencent: What future?
Ubisoft is a publisher whose holding company is owned by the five Guillemot brothers. The company is in the spotlight due to the presence of Tencent, a Chinese new technology giant, which invested 300 million euros to hold 49,9% of the capital of Guillemot Brothers, the main shareholder of Ubisoft, but only 5 % of voting rights, with no seat on the board of directors and no right of approval or right of veto. This raises questions as to Tencent's motives. Tencent's investment avoids any unwanted takeover bids, as the capital is locked in, but does not close the door to a full takeover. Ubisoft's board of directors has indicated that the company can continue to grow and create value while remaining independent, but that it is ensuring that all options remain open in the interests of shareholders and employees.
A lack of creativity and risk taking
Ubisoft employees complain about the lack of creativity in the company and the fact that editorial decisions are based on market research rather than original ideas. Developers fear the company is only focusing on its most popular licenses and being risk-averse with new licenses. Steep and Riders Republic creative director Igor Manceau left in October 2022 after just one year in the role.
Who will have the biggest?
Ubisoft suffers from a tendency to want to turn all of its games into giant productions, which has led to costly delays and development issues. For example, Skull & Bones would have cost more than 200 million euros and Beyond Good & Evil 2 more than 150 million euros, with no guarantee of profitability. Ubisoft would like to compete with competitors like Call of Duty, which use up to 4 developers for an episode. However, this trend also leads to staff management issues, with employees finding themselves without a project and teams having to be reassigned when projects are cancelled.
In short
French video game publisher Ubisoft announces a loss of 500 million euros for the 2022-23 financial year, against the 400 million euros of profits initially forecast, mainly due to a difficult economic context and the under -performance of its flagship games. Alarming comments from financial analysts and difficulties faced by other video game publishers have also affected the company's credibility with investors. Ubisoft is facing difficulties in terms of its business model and governance, and the lack of clear communication around its reorganization is also concerning. The presence of Tencent, a Chinese giant of new technologies, which invested 300 million euros to hold 49,9% of the capital of Guillemot Brothers, the main shareholder of Ubisoft, also raises questions as to the motivations of Tencent.