Ubisoft's Rebound Strategy and Gaming Outlook

Emily Carter

Hi everyone, and welcome back to Global Equity Research, the podcast where we dig into company strategies and financials to help you make sense of the global markets. I'm Emily Carter.

David Mitchell

And I'm David Mitchell. As always, this episode is brought to you by Softgate Capital Research, the research arm of Softgate Capital. We're here to break down company outlooks and investment ideas—in plain English, or, yeah, at least in plainer English than the reports themselves.

Emily Carter

Right! If you've been following our last episodes, you know we’ve tackled everything from Aston Martin’s turn toward electrification to the EU’s Green Deal. But today we’re getting our controllers out, because we’re diving into the world of gaming!

David Mitchell

That’s right, Emily. Ubisoft’s in the spotlight. This isn’t just your average playthrough, it’s a discussion of how a legacy gaming studio is fighting to win back both investors and players. Let’s get started.

Emily Carter

So, quick background before we level up into the details: Ubisoft Entertainment SA is a French video game giant, founded and still controlled by the Guillemot family—that’s a big deal in terms of ownership stability. They’re known for heavy-hitter franchises like Assassin’s Creed, Far Cry, Tom Clancy’s Rainbow Six, and more. Share price, as of the latest, is hovering around seven euros, and the current Softgate headline rating is 'Overweight,' meaning there’s upside, at least according to Softgate’s analysts.

David Mitchell

Right. But, you know, it’s not quite the happy story you’d expect for a company with, uh, a global fanbase like that. Over the past decade, the Guillemot family’s kept a tight grip, Tencent now owns almost 10% through a minority stake, and as of late, there’s been this push to create a new subsidiary—backed by Tencent's investment—for some of their top IP: Assassin’s Creed, Far Cry and Rainbow Six. That’s a strategic pivot.

Emily Carter

Exactly. And don’t forget the big shift in corporate strategy—Ubisoft’s moving from, I guess, the “spaghetti at the wall” release model to a streamlined approach: “fewer, bigger, better” and a real emphasis on games-as-a-service. It’s all about recurring revenues now, not just one-off hits. We’ll get more into those mechanics later. But David, maybe take this one—how big of a deal is this Tencent-backed subsidiary?

David Mitchell

Good question. So, Tencent stepping in with capital for a separate entity means Ubisoft can pour more resources into those tentpole franchises, without the same cash constraints. It’s not just about money—it’s access to the Asian market, and also, it allows more flexibility in how they manage and expand those big-name series. The idea is to get more leverage out of existing IP while potentially de-risking launches. If it all works, it could change the whole growth engine for Ubisoft. But, you know, that’s still a “wait and see.”

Emily Carter

Now, before we start talking about business models and revenue tech, let’s go through what’s honestly been a pretty wild five years for Ubisoft. You’ve got booms, you’ve got busts—let’s just, uh, run through this quickly.

David Mitchell

Yeah, to say it’s been volatile is putting it mildly. Go back to fiscal 2020–21: Ubisoft’s bookings spiked, mostly because of Assassin’s Creed Valhalla and, actually, a decent performance from their older games—what they call the “back catalog.” Bookings came in around €2.13 billion. Seems impressive, but not for long.

Emily Carter

Right—because then the hangover hit. By 2021–22, bookings dropped a bit, about -7%. They basically slowed their release cadence, investments rose, and, well, net profit took a hit. But it gets worse: 2022–23, bookings fell off a cliff—to €1.74 billion—with a bunch of games delayed, projects cancelled, and heavy impairment charges on some write-offs. They were just bleeding cash at that point and forced to prune their pipeline hard.

David Mitchell

Exactly. And, you know, operationally that meant slashing costs, postponing riskier bets, and only green-lighting what looked like surefire hits. Their free cash flow basically tanked, and they had to do some major house-cleaning on active projects. But this past fiscal year—it’s kind of a “reset.” Management got more disciplined, cut the fat, and—yeah, it’s a painful process—but net bookings for 2023–24 bounced back above €2.2 billion, and free cash flow swung positive again, which, you know, is a big shift after some ugly years.

Emily Carter

So it’s not all doom and gloom. Still, David, what would you say actually changed operationally, when they talk about cost rationalization and pipeline pruning?

David Mitchell

Honestly, it’s about being ruthless. They killed off underperforming projects, trimmed recurring costs, shifted resources to core franchises. A lot of those “maybe, someday” releases didn’t make the cut. The focus moved to quality—not just quantity. Whether it sticks, well, that’s kind of the whole thesis here, right?

Emily Carter

Let’s break down how exactly Ubisoft makes money. The company’s evolved a lot, both regionally and in terms of product mix. Right now, North America and Europe are still the top sources—North America’s about 45% of net bookings—but Asia’s role is absolutely growing, especially as Tencent’s involved.

David Mitchell

Yeah, and on the platform side, it’s interesting—console and PC are still the bread and butter, but mobile’s coming up, partly through partnerships. And, uh, one of the big changes since, say, five or ten years ago, is how much is now digital versus physical. Over 90% of Q4 bookings were digital. Physical sales are, you know, basically collectible editions at this point.

Emily Carter

Totally. One number that jumped out: Player Recurring Investment, or PRI, that’s things like DLC, season passes, battle passes—PRI is now around 19% of all bookings. And get this, the back catalog, meaning games launched in prior years, accounts for around 70% of expected bookings this year. That tells you how important evergreen content is now.

David Mitchell

Absolutely. And it changes the economics completely: if you can grow the mobile base, or keep people engaged with updates and live-ops, the margins are higher, and the games last longer—years, not months. That’s the promise. Now, speaking of live-ops—let's cue up a quick audio sample of a seasonal update; it’s the kind of thing that actually drives those PRI spikes.

Emily Carter

Sounded pretty fun, right? But not just fun—important for financials. Let’s bring in our imaginary live-ops and mobile expert. How do those economics—mobile, live service—change the whole margin picture and growth runway for Ubisoft?

David Mitchell

Well, higher ARPU, lower distribution costs, less dependence on front-loaded sales. But it comes with risk—if player engagement dips, revenue can collapse fast. So it’s all about tuning the “games as a service” flywheel. If they nail it, it’s a margin expansion story. If not, well, it’s another “game over.”

Emily Carter

Let’s put on our valuation hats. Ubisoft’s been hammered—stock down about 80% since its 2018 highs, share price halved in just the last 18 months. On the current twelve euro share price, that’s a market cap of just over €1 billion. Way below where it used to be.

David Mitchell

Yeah, and if you compare—say, EV to sales, so enterprise value to sales—Ubisoft sits at 1.1x, compared to over 6x for Electronic Arts and Take-Two Interactive. The market thinks their margin risk is real, and… uh, here’s that subtle ticking sound of valuation tension for you. And this is despite Softgate’s base case for an 8% revenue CAGR and margins climbing to about 20% by 2030, with a 10% discount rate. On those numbers, they get a price target of twelve euros—so, about 35% upside from here.

Emily Carter

But here’s the catch—the market’s punishing Ubisoft for past execution flops. David, why do you think investors are applying this steep discount? What could flip that sentiment?

David Mitchell

Look, the skepticism is all about show-me-the-cash. If Ubisoft starts hitting its own guidance—positive free cash flow, margins up, back catalog performing—plus signs of cost discipline and maybe some outperformance on major releases… The market could re-rate the stock fast. But it’s going to take a string of wins, not just talk. And maybe something dramatic, like another stake increase from Tencent, or a buyback, could tip that scale. Right now, it’s all in the “prove it” camp.

Emily Carter

Alright, let’s ground all this optimism—such as it is—in some real risks and opportunities. So, a quick SWOT rundown: Strengths? Obviously the deep IP bench, global studio system, surprisingly sticky PRI revenues. Weaknesses? Inconsistent execution, heavy cost structure—they’ve had trouble hitting deadlines and budgets for years.

David Mitchell

Opportunities? The big games about to launch—Avatar, Assassin’s Creed Red, Star Wars Outlaws—and an expanded push into mobile. Plus, there’s some white space for M&A, like buying up indie studios for talent or tech. Threats—well, plenty: one or two marquee flops, ramping competition from giants like EA or Take-Two, platform changes, or if the regulatory heat picks up in China or the EU. It can go south quickly.

Emily Carter

And those near-term catalysts to actually watch: new franchise launches, the Tencent deal fully closing and deleveraging, and what gets revealed at the upcoming Ubisoft Forward presentation. Of course, earnings beats and, on the darker side, any grim corporate actions.

David Mitchell

Let’s imagine we have a community manager or even a hardcore player with us: What are the live-service or upcoming titles that could really reignite excitement? I mean, most say Assassin’s Creed Red, but if Star Wars Outlaws hits, or the Division Heartland can pull off what it’s promising, that could move the needle—both with fans and investors.

Emily Carter

And you know, even just positive buzz from ongoing in-game events can lift engagement numbers fast. It’s a highly reactive market.

Emily Carter

So, to wrap it up: Ubisoft’s a turnaround story with a lot riding on IP value and a big pivot to profitability. If they execute, there’s real upside, especially at these discounted levels. But, you know, it’s all about stringing together actual wins—not just promises.

David Mitchell

Yep. For the “what to watch” list: keep your eyes on those big launches, margin trends, cash flow numbers, and shareholder moves—especially anything with Tencent or corporate buybacks. There is potential for a contrarian play here, but don’t sleep on the risks.

Emily Carter

Thanks for tuning in to Global Equity Research—don’t forget to like, subscribe, and share. And for our legal note, as always: Softgate Capital Research is not responsible for any investment decisions you make based on this podcast. Do your own research.

David Mitchell

Thanks so much, Emily! Great chat as always.

Emily Carter

You too, David. See you next time!