Ubisoft H1 FY2020 Results – Income Plummets Due to Failures, Slow Year Expected Through Delays

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Ubisoft (EPA:UBI) has had a difficult three months, particularly with the recent high-profile critical and commercial failure of Ghost Recon Breakpoint. Indeed, the failure of Ghost Recon Breakpoint has had such an impact on the company that it has resulted in a huge cut from the company in expectations for the current financial year as their whole line-up of titles for the current year have been delayed.

Indeed, the impact on the current quarter cannot be understated, with Ubisoft specifically stating in the press release that accompanied the earnings:

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Operating income affected by impairment charges recorded for GhostRecon® Breakpoint

Operating income for the quarter came in at €9.3 million, a huge 90.1% year on year fall. Net bookings at €661.1m do show an 11.4% YoY fall. This figure is boosted due to Q2 net bookings coming in at €349.9m, up against the target of €310m.

Back Catalogue Titles - The Saving Grace of Ubisoft

One thing that is instantly visible when reading through the financials and the accompanying release is the lack of The Division 2, Ubisoft's other large release of 2019. There is no mention of the title, though we know the company stated earlier this year that the game had failed to meet expectations on home consoles, though it sold in-line with expectations on the PC.

If you happen to have read any of Ubisoft's previous financial results, or my pieces regarding them, the titles that are proving successful should come as no surprise. The ever consistent achiever Rainbow Six Siege now has over 50 million registered players and has seen an increase of monthly active users and player recurring investment (PRI) YoY.

Ubisoft was also keen to point out that Assassin's Creed Odyssey also saw a sharp rise in daily player engagement, PRI and sell-through when compared to that of Assassin's Creed Origins. All of this amounts to a larger focus on the back catalogue of the company than ever before. While this is rare compared to how video games companies used to operate, the nature of live service titles and their frequent content updates enables games to perform much stronger over time, particularly true following a slow start as is the case with Rainbow Six Siege and For Honor.

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CEO and Co-Founder Yves Guillemot had this to say on their current performance:

Our second-quarter performance demonstrates the solidity of our back catalog, which was fueled by the strong momentum of many of our titles. Having already seen very sharp growth in the first quarter, Assassin’s Creed Odyssey delivered a further acceleration in performance compared with the previous opus in terms of sell-through, player engagement and PRI. MAUs for Rainbow Six Siege reached a record high during the quarter and its PRI continued to increase. This game is making its mark in a highly competitive environment, particularly in the sports arena.

Ubisoft: Putting the Past Behind - Building for the Future

Yves Guillemot followed up on that previous statement with one that looked towards the near future of the company, stating:

As illustrated by our announcement last week, we are continuing to take decisions in the interests of Ubisoft's long-term future. It is as a result of this approach that we’ve been able to significantly and successfully transform our business model in recent years and create major shareholder value.

The announcement mentioned being the one regarding the company's whole line-up of 'AAA' titles being delayed until the next financial year. As a result of this, the company only has two titles planned to release over the remainder of the financial year, that being Just Dance 2020 next week, on the fifth of November, and Assassin's Creed: The Rebel Collection for the Nintendo Switch on the sixth of December.

Beyond these two titles, Ubisoft will be relying on digital-only content for existing titles, or the release of older titles on the upcoming Google Stadia streaming service. As such, the company is expecting a slow Q3, with net bookings of only €410m and a significant downturn on previous financial year targets. The net bookings target has been lowered from €2.185bn to €1.45bn, with the operating income target lowered from €480m to somewhere in the region of €20m to €50m.

There is, however, an even larger focus further ahead, looking towards the FY ending 2021. Towards the end of the 2020 calendar year, a new console generation is expected to launch, allowing Ubisoft to take advantage of this period through the launch of their titles before, during and after the launch. This is particularly true due to the backwards-compatibility features this new generation touts, enabling consumers to play their older generation titles on the new consoles.

Ubisoft’s prospects are particularly promising. Our numerous growth vectors going forward include the arrival of the next generation of consoles, the opening up of the Asian market and our partnership with Tencent for launching our franchises on mobile. All of these are strong value creation drivers for the medium term.

Over the next financial year, Ubisoft is now predicting five 'AAA' releases, three of which are already confirmed as Watch_Dogs Legion, Gods & Monsters and Rainbow Six: Quarantine. The other two are most likely new installments in the hard-hitting Assassin's Creed and Far Cry franchises, while Beyond Good & Evil 2 and Skull & Bones remain in development for a release that won't come before FY2022.

All of this points towards a much brighter future for Ubisoft, with this year likely being marked as an outlier compared to recent and arguably future performances. The delay of their titles, inspired by the undeniably terrible output that was Ghost Recon Breakpoint, should allow for an increased push on quality, giving a boost to both the critical and commercial reception of future titles.

Ubisoft has also marked FY 2022 and beyond with also featuring 3-4 'AAA' titles, as well as a focus on the back catalogue, continuing the push of live service titles like the earlier mentioned Rainbow Six Siege. All of this points towards a company that is in a strong position for the future, as well as one that understands that while the delay of their titles leaves the current financial year flat-at-best, the coming two have almost unrivalled potential in the company's history.