EUR 850.00 For Business Accounts Only

Morningstar | Ubisoft Posts Inline 3Q; Division 2 May Face Uphill Battle Against Fortnite and Apex Legends

Ubisoft met its fiscal third-quarter expectations as net bookings for the quarter of EUR 606 million came in line with guidance, a rare occurrence across the video game publishers this quarter. While Ubisoft only reports revenue for its fiscal first- and third-quarter results, management did reiterate its targets for fiscal 2019. The firm’s schedule has two major releases for its final fiscal quarter of 2019, Far Cry New Dawn which launched on Feb. 15, and The Division 2 which will launch on March 15. We are maintaining our narrow moat rating and fair value estimate of EUR 66 for Ubisoft. With shares trading in 3-star territory, we recommend that investors wait for a pullback before investing.

Net bookings of EUR 606 million for the third quarter came in line with guidance of EUR 600 million but revenue of EUR 562 million fell short of the guidance of EUR 580 million due to a clarification concerning the booking of revenue deferral under the new accounting standard. Player recurring revenue grew by 40% to EUR 444 million and now represents 33% of net bookings, up 27% from a year ago, as the firm continues to benefit from its shift toward a games-as-a-service business model. Two of the firm’s major 2018 releases made the top 10 games sold in Western markets for the year--Far Cry 5 at #4 and Assassin's Creed Odyssey at #10. Both titles have significant potential recurring revenue streams and Odyssey is already significantly outperforming its predecessor, Origins, in terms of play time, conversion rate, and recurring revenue.

Looking ahead, The Division 2 is a multiplayer online shooter that will compete directly with EA’s Anthem which is set to launch on Feb. 23, roughly three weeks ahead of the Ubisoft title. While there may be room for two team based online shooting games, the two titles are competing not only with each other but with other online shooting games like Fortnite, Call of Duty, and EA’s recent surprise hit, Apex Legends. Division 2 may be able to convert and hold on to players of the first Division game, but the intense competition will make it hard for the game to become a breakout hit without capturing the Twitch and media spotlight currently shining on Apex Legends and the current online shooter/battle royale king, Fortnite.