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Ubisoft’s stock jumped 36% last Friday on Bloomberg’s report that Tencent may pursue a buyout or take the company private.
While the French game publisher didn’t confirm or deny the rumors, it did say it’s reviewing “all its strategic options in the interest of its stakeholders and will inform the market if and when appropriate.”
It would be another high-profile acquisition after a series of large gaming deals in recent years:
Activision Blizzard (bought by Microsoft) for $69 billion in 2023.
Zynga (bought by Take-Two) for $12.7 billion in 2022.
ZeniMax Media (bought by Microsoft) for $7.5 billion in 2021.
Savvy Games (bought by Scopely) for $4.9 billion in 2023.
Bungie (bought by Sony) for $3.7 billion in 2022.
Glu Mobile (bought by EA) for $2.4 billion in 2021.
Keywords Studios (bought by EQT) for $2.4 billion in 2024.
Ubisoft is only a $2 billion company today, nearly 90% down from its 2021 high. The stock cratered by over 40% in September alone, so the recent spike is merely a brief respite. With such a depressed valuation (roughly one-time FY25 net bookings), seeing a buyer step in at a premium wouldn’t exactly be a win.
So, what should we make of this news, and what should we expect from gaming M&A in the coming quarters? Let’s review.
Today at a glance:
Ubisoft’s Challenges
Potential Buyers.
IP Gold Rush.
The Future of Gaming M&A.
1. Ubisoft’s Challenges
Ubisoft has struggled with canceled titles, delays, and declining quality in the post-COVID era. Let’s visualize FY24, the fiscal year ending in March 2024.
Net bookings explained: This metric captures the total amount spent by users during a period, including game sales, in-game purchases, subscriptions, and DLC (downloadable content). It's a key indicator of business momentum. Net bookings are recognized as revenue over time based on the delivery of the content and the lifetime of a user.
Key takeaways:
Digital-first: 86% of Ubisoft's net bookings come from digital sales (premium, free-to-play, and subscriptions). It was 12% in 2013, illustrating the transformative past decade.
Far behind on mobile: Ubisoft has trailed its peers, with only 7% of revenue coming from mobile. In contrast, nearly half of the industry’s revenue comes from smartphones.
Margins improved after cost-cutting: Digital games are a high gross margin business, particularly with the back catalog (title released in previous years) making up nearly two-thirds of net bookings. Targeted restructurings impacted FY23, making the short-term margin trend misleading. Ubisoft laid off 1,700 employees between September 2022 and March 2024, roughly 6% of its workforce.
Short-lived turnaround: FY23 was a challenging year, with Net bookings collapsing by 18% with the underperformance of Mario + Rabbids: Sparks of Hope and Just Dance 2023. In FY24, Net bookings rebounded sharply, growing 34% with the successful release of Assassin’s Creed Mirage and The Crew Motorfest.
FY25 collapses in one week: After a poor performance from Star Wars Outlaws (released at the end of August and initially expected to be a big blockbuster) and a launch delay for Assassin’s Creed Shadows from November to February, Ubisoft cut its FY25 net bookings guidance to €1.95 billion, which would be a 16% decline year-over-year (compared to “solid growth” expected earlier this year). Management expects the business to barely break even on an adjusted basis.
The delay for Assassin’s Creed Shadows, only weeks before launch, was based on the learnings from the poor reception of Star Wars Outlaws. However, a three-month delay may not be enough to address the game quality and the Japanese community’s historical and cultural accuracy concerns.
But wait, there’s more!
In addition to these financial and operational challenges, Ubisoft has been plagued with toxic workplace allegations. Several former Assassin’s Creed Studio executives were arrested in connection with a sexual assault and harassment investigation.
This is, of course, reminiscent of the train wreck that had become Activision Blizzard in the months leading to its acquisition by Microsoft. That brings us to potential buyers.
2. Potential Buyers
Ubisoft is still very much a family business run by its founders.
The latest annual report showed the following net voting rights:
The Guillemot family held 20.5%.
Tencent owned 9.2%.
In September, minority shareholder AJ Investments said it had gathered support from 10% of shareholders and called for Ubisoft to be sold or taken private with a fair value estimated at €40 to €45 per share. With shares trading at €13 as of this writing, that sounds wildly optimistic.
So, who could realistically be involved in a Ubisoft buyout?
The Players
Tencent: Already a significant shareholder, Tencent could increase its stake or even aim for majority ownership. Tencent is the largest company in the world in terms of gaming revenue. It has been a serial acquirer, notably buying Finnish gaming publisher Supercell (Clash of Clans) for $8.6 billion in 2016. However, Tencent's aggressive acquisition strategy has faced regulatory scrutiny in recent years, particularly in the US and Europe. This could pose a challenge for a potential Ubisoft acquisition, especially if it involves gaining majority control.
Guillemot Family: The founding family might want to regain more control over Ubisoft and take it in a new direction. They could partner with a private equity firm or another strategic investor to finance the buyout. Given Ubisoft's size and the potential cost of a buyout, it might be challenging for the Guillemot family to go it alone.
Other Potential Investors: Private equity firms or other strategic investors in the gaming industry could join the buyout group. These investors might be attracted to Ubisoft's valuable IP and its potential for turnaround under new leadership.
Gaming companies: Beyond Tencent, the visual above shows the largest companies by gaming revenue in 2023.
Apple and Google: These tech giants have been expanding their presence in the gaming industry, but a Ubisoft acquisition seems unlikely due to their existing antitrust scrutiny.
NetEase, EA, and Take-Two: These companies would be straightforward studio consolidations. It would likely be most compelling for NetEase to expand its reach on console and PC in the West, but Tencent's involvement could be a hurdle.
Sony and Microsoft: As first-party publishers, they would directly benefit from expanding their subscription services with exclusive content. They have both acquired new studios aggressively in recent years. If the Activision Blizzard acquisition could pass the sniff test, there is no reason why Ubisoft couldn't. In their latest fiscal year, gaming was 32% of Sony’s revenue and less than 9% of Microsoft’s revenue.
3. IP Gold rush
In the gaming world, intellectual property (IP) is king. Iconic franchises like Call of Duty, Mario, and Grand Theft Auto are multi-billion-dollar assets that can make or break a company’s outlook. For this reason, companies are scrambling to acquire established IPs or gain access to the creative teams behind them.
Why is IP so valuable?
Lower risk: Creating a new AAA game can cost hundreds of millions of dollars and take years to develop, with no guarantee of success. By acquiring a well-known IP, companies can build on an established fanbase and reduce the risk of failure.
Brand power: Consumers are more likely to buy games with familiar characters, worlds, or studios attached. Game designers and producers like Hideo Kojima (Metal Gear) or Hidetaka Miyazaki (Elden Ring) are just as improtant.
Content scalability: Well-known IPs can be monetized across multiple channels, such as sequels, spin-offs, and licensing deals. In addition, large publishers already have the distribution and support functions to maximize the return on investment.
This trend isn’t exclusive to the gaming industry. Media giants are following similar strategies:
Amazon’s acquisition of MGM: In 2021, Amazon acquired MGM for $8.5 billion, gaining access to James Bond and hundreds of other film properties to bolster its Prime Video service.
Disney’s acquisition of Lucasfilm and Marvel: Disney’s acquisitions have generated massive returns through sequels, TV series, and licensing.
Why now?
Consolidation pressure: The rise of subscription services and cross-platform play is fueling industry consolidation. Large companies want to lock in IPs to differentiate their services and attract loyal customers. Smaller studios are increasingly willing to sell their game pre-launch rather than struggle to compete in an increasingly crowded and capital-intensive market.
Value in ownership: In gaming, owning IPs enables companies to create expansive worlds and build long-term engagement through ongoing content updates, expansions, and live services. This steady flow of interactive experiences fosters player retention and recurring revenue, something that is harder to achieve in video content.
Cross-media expansion: A popular game can translate into movies, TV shows, or even theme parks. For example, The Last of Us became a successful HBO series, while Sony is exploring more TV adaptations for Horizon Zero Dawn and God of War. The result? More revenue, broader reach, and IP longevity.
The Ubisoft Angle
Ubisoft’s own IPs, such as Assassin’s Creed, Far Cry, and Tom Clancy’s Rainbow Six, have massive potential for future growth despite recent setbacks. However, capitalizing on these franchises may require new leadership or a fresh strategy, something a new buyer could offer.
The appeal of Ubisoft’s portfolio may be enough to attract a range of suitors, even though the company is struggling on all fronts. For the right acquirer, Ubisoft’s challenges could be seen as an opportunity to buy low and reshape the editorial strategy.
More studios and publishers look for ways to hedge their bets in an evolving industry, which brings us to future M&A.
4. The Future of Gaming M&A
The gaming industry is in constant flux, and several trends are fueling the M&A frenzy:
📱 Mobile first: The mobile gaming market is the largest and fastest-growing, making studios with a strong mobile presence hot targets. Think Playrix (Gardenscapes, Homescapes) and Scopely (MONOPOLY GO!, Stumble Guys).
💻 Cross-platform: Cross-platform play is becoming the norm, and companies with expertise in this area are highly sought after. Unity and Epic Games play a critical role with their widely used game engines, but large studios also build solutions in-house.
☁️ Cloud gaming: Still in its early days, cloud gaming will revolutionize how we play. Companies with cloud infrastructure and technology are becoming increasingly valuable, with Microsoft (Game Pass Ultimate), Sony (PlayStation Plus Premium), and NVIDIA (GeForce Now) leading the charge.
🥽 Metaverse: It’s not all about AR/VR. Virtual worlds like Roblox and Fortnite have built expansive, social, and interactive spaces that keep players engaged beyond traditional gameplay. Companies developing these experiences are attractive targets for firms wanting to capitalize on this trend.
🔗 Web3 & Blockchain: Web3 games bring decentralized ownership and in-game economies powered by blockchain. This trend enables players to truly own and trade digital assets, opening new revenue streams and attracting interest from companies exploring the intersection of gaming and crypto.
🤖 AI-driven studios: AI is already used in game development, and its role will only grow. Companies with AI expertise, particularly in game design and player behavior analysis, are becoming hot commodities. If the code is going to write itself (eventually), AAA budgets could shift more toward live services, brand and performance marketing.
The Big Picture:
The gaming industry is consolidating, with larger players acquiring valuable studios and IPs. There will always be room for small indie games, even more so with AI lowering the barrier to entry. However, the industry concentration will likely strengthen the leaders and leave little room for the mushy middle.
If even Ubisoft—a company valued at over $12 billion in 2021—can’t make it on its own, it doesn't leave much room for others.
That’s it for today!
Stay healthy and invest on!
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Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
Disclosure: I am long AAPL, GOOG, NTES and TCEHY in App Economy Portfolio.