Ubisoft shares surge on Jefferies' double upgrade to buy rating

By Louis Goss

French video game developer seems 'undervalued,' say analysts

Ubisoft shares increased sharply on Monday after Jefferies analysts said the troubled video game developer could be boosted by a pivot towards the high-margin subscriptions business and the release of its new Star Wars and Assassin's Creed titles.

Jefferies analysts, led by Sebastian Patulea, gave Ubisoft a double upgrade to a buy rating as they said the French company "appears undervalued in relation to its own history, available opportunities in the wider European video games sector and its intrinsic value."

They based the upgrade on a "change in monetization model towards subscription revenues, profitability and a strong FY25 [full year 2025] games pipeline based on proven IPs [intellectual properties}, which should de-risk the stock's growth trajectory."

Ubisoft (FR:UBI) shares, listed on the Euronext Paris stock exchange, increased 8% on Monday, having previously lost 15% of their value in 2024 and 71% over the past five years.

Jefferies' analysts said the video game developer's strategic pivot towards the high-margin subscriptions market, through its rebranded Ubisoft+ platform, has potential to significantly boost its sales and profitability - particularly in allowing it to monetize its back catalog of existing games.

Subscribers of Ubisoft+, which was first launched as Uplay+ in September 2019, pay a subscription fee of $23.95 a month for access to a full catalog of more than 100 new and classic games including the developer's Prince of Persia and Far Cry titles.

The analysts said Ubisoft's shift towards a subscription model has potential to increase its profits by around 30%, compared to its current model which sees customers buy their video games outright via single one-off purchases.

Ubisoft's push to boost its subscription business could also see it generate more reliable revenue, while reducing the risks associated with any single title flopping, as was seen most recently in the underwhelming release of "Avatar: Frontiers of Pandora" in December 2023.

The analysts said Ubisoft's revenue will be boosted further by the fact that around 2-10% of subscribers will likely forget to cancel their subscriptions.

Ubisoft+ is set to be boosted further by the addition of Activision Blizzard's own catalog of games to the subscription service by March 2025, following the striking of an agreement between the two companies in October last year.

All of this could see Ubisoft+ alone become more profitable than the entirety of the Ubisoft Group is currently, Jefferies analysts said.

Ubisoft is now readying itself to launch its new "Star Wars Outlaws" title in August and its new "Assassin's Creed Shadows" title in November. Jefferies analysts said both titles look impressive and could become top sellers.

-Louis Goss

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07-08-24 0825ET

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