Can Tencent salvage Ubisoft's sinking ship?
Updated
Ubisoft’s stock pumped 35% couple of days ago following a Bloomberg report suggesting that Tencent may either acquire the company or take it private
Although the French gaming company didn’t confirm or deny the speculation, it did state that it’s considering "all strategic options" for the benefit of its stakeholders and will notify the market when necessary
If Tencent proceeds, it would mark another significant acquisition in a wave of major gaming deals over recent years:
- Activision Blizzard acquired by Microsoft for $69 billion in 2023.
- Zynga acquired by Take-Two for $12.7 billion in 2022.
- ZeniMax Media acquired by Microsoft for $7.5 billion in 2021.
- Savvy Games acquired by Scopely for $4.9 billion in 2023.
- Bungie acquired by Sony for $3.7 billion in 2022.
- Glu Mobile acquired by EA for $2.4 billion in 2021.
- Keywords Studios acquired by EQT for $2.4 billion in 2024.
Ubisoft’s valuation sits at just $2 billion, nearly 90% below its peak in 2021! The stock fell by more than 40% in September alone, so this recent surge is only a brief reprieve. Given its diminished value, a potential buyer offering a premium wouldn’t necessarily be a massive win.
So, how should we interpret this news, and what can we anticipate for future gaming M&A activity? Let’s break it down.
Key Points
1.Ubisoft’s Challenges
2.Potential Buyers
3.IP Gold Rush
4.Future of Gaming M&A
1. Ubisoft’s Challenges
Ubisoft has faced setbacks including canceled games, delays, and a dip in quality in the post-pandemic era. Let’s take a look at the fiscal year 2024, which ends in March.
Consider this metric reflects the total amount spent by users within a period, covering game sales, in-game purchases, subscriptions, and downloadable content (DLC). It’s an important measure of business performance, with net bookings recognized as revenue over time, depending on content delivery and user engagement
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 a Week: After the underperformance of Star Wars Outlaws (released at the end of August and originally expected to be a blockbuster) and the delayed launch of Assassin’s Creed Shadows from November to February, Ubisoft revised its FY25 net bookings forecast down to €1.95 billion, a 16% decline year-over-year (compared to the "solid growth" expected earlier). The company now anticipates barely breaking even on an adjusted basis.
The decision to delay Assassin’s Creed Shadows just weeks before its scheduled release was influenced by the poor reception of *Star Wars Outlaws*. However, the three-month delay might not be enough to resolve concerns over game quality or criticisms from the Japanese community regarding historical and cultural inaccuracies.
But that’s not all!
In addition to these financial and operational difficulties, Ubisoft has faced allegations of a toxic workplace. Several former executives from the *Assassin’s Creed* studio were arrested as part of an investigation into sexual assault and harassment.
This situation mirrors the downfall of Activision Blizzard in the months leading up to its acquisition by Microsoft, which leads us to potential buyers for Ubisoft.
2. Potential Buyers
Ubisoft remains a family-run company, largely overseen by its founders.
The latest annual report reveals the following voting rights:
- The Guillemot family controls 20.5%
- Tencent owns 9.2%
In September, minority shareholder AJ Investments claimed it had gained backing from 10% of shareholders and called for Ubisoft to be sold or taken private, estimating a fair value of €40 to €45 per share. With shares currently trading at €13, this seems highly optimistic.
So, who are the likely candidates for a Ubisoft buyout?
Key Players:
-Tencent: Already a significant shareholder, Tencent could increase its stake or seek majority control. As the largest gaming company globally by revenue, Tencent has a history of acquisitions, such as its purchase of Finnish publisher Supercell (*Clash of Clans*) for $8.6 billion in 2016. However, Tencent's aggressive expansion has drawn regulatory scrutiny, especially in the US and Europe, which could complicate any attempt to acquire majority control of Ubisoft.
Guillemot Family: The founding family might be interested in reclaiming greater control of Ubisoft and steering it in a new direction. To finance the buyout, they could collaborate with a private equity firm or a strategic investor. However, given Ubisoft's current size and the significant cost associated with a buyout, it could be difficult for the Guillemot family to pursue this path on their own.
Other Potential Investors: Private equity firms or strategic investors within the gaming sector might also join a buyout consortium. These investors could be drawn to Ubisoft’s valuable intellectual property (IP) and see potential for a turnaround under new leadership.
Gaming Companies: Besides Tencent, the largest gaming revenue players in 2023 are highlighted in the visual.
-Apple and Google: Although both tech giants have been expanding into gaming, acquiring Ubisoft seems unlikely given their current antitrust scrutiny.
-NetEase, EA, and TakeTwo: These companies would find an Ubisoft acquisition to be a straightforward studio consolidation. NetEase, in particular, might find it appealing to broaden its console and PC presence in the West, but Tencent’s involvement could complicate this.
-Sony and Microsoft: As first-party publishers, both would benefit from boosting their subscription services with exclusive content. They’ve aggressively acquired studios in recent years. Given that the Activision Blizzard deal was approved, there’s no reason a Ubisoft acquisition couldn’t pass as well. In their latest fiscal year, gaming accounted for 32% of Sony’s revenue and less than 9% of Microsoft’s.
3. IP Gold Rush
In the gaming industry, intellectual property (IP) is crucial. Iconic franchises like *Call of Duty*, *Mario*, and *Grand Theft Auto* are multi-billion-dollar assets that significantly impact a company’s future. As a result, many companies are eager to acquire established IPs or gain access to the teams behind them.
Why is IP so valuable?
-Lower risk: Developing a new AAA game can cost hundreds of millions and take years, with no guarantee of success. Acquiring a popular IP allows companies to tap into an existing fanbase and reduces the risk of failure.
-Brand power: Consumers are more inclined to purchase games with familiar characters, worlds, or studios behind them. Well-known creators like Hideo Kojima (*Metal Gear*) and Hidetaka Miyazaki (*Elden Ring*) are just as significant.
-Content scalability: Famous IPs can generate revenue through sequels, spin-offs, and licensing deals. Large publishers have the infrastructure to maximize returns across multiple channels.
This strategy isn’t unique to gaming. Media giants follow similar patterns:
-Amazon’s acquisition of MGM: In 2021, Amazon acquired MGM for $8.5 billion, gaining access to franchises like *James Bond* to enhance its Prime Video content.
-Disney’s acquisition of Lucasfilm and Marvel: These acquisitions have delivered massive returns through movies, TV series, and licensing opportunities.
Why now?
-Consolidation pressure: Subscription services and cross-platform gaming are driving consolidation. Big companies want to secure valuable IPs to differentiate their services and attract loyal customers. Meanwhile, smaller studios are more open to selling early to avoid competing in an increasingly crowded and capital-intensive market.
-Value in ownership: Owning IPs in gaming allows companies to create expansive worlds and engage players long-term through updates, expansions, and live services. This keeps players coming back and generates recurring revenue, which is harder to achieve in video content.
-Cross media expansion: Popular games can expand into movies, TV series, or theme parks. For instance, *The Last of Us* became a hit HBO show, and Sony is developing TV adaptations for Horizon Zero Dawn and God of War. This leads to more revenue, a broader audience, and long-lasting IP appeal.
The Ubisoft Angle
Ubisoft’s IPs, like *Assassin’s Creed*, *Far Cry*, and *Tom Clancy’s Rainbow Six*, have significant potential for future growth, despite recent struggles. However, realizing that potential might require new leadership or a fresh strategy, which a new owner could provide.
Even though Ubisoft faces challenges, its strong portfolio might attract various buyers. For the right acquirer, Ubisoft's problems could represent a chance to buy low and rework its creative direction.
As more studios seek to hedge their risks in this changing industry, we can expect more mergers and acquisitions (M&A) in the future.
4. The Future of Gaming M&A
The gaming industry is constantly evolving, and several trends are fueling a surge in mergers and acquisitions:
-Mobile-first: Mobile gaming is the largest and fastest-growing segment, making companies with a strong mobile presence attractive. Examples include Playrix (Gardenscapes,Homescapes) and Scopely (MONOPOLY GO!,Stumble Guys)
-Cross-platform: Cross-platform play is becoming the standard, and companies with expertise in this area are in high demand. Unity and Epic Games play vital roles with their popular game engines, while major studios are also building in-house solutions.
- Cloud gaming: Still in its early stages, cloud gaming has the potential to revolutionize how games are played. Companies with cloud infrastructure are becoming more valuable, with leaders like Microsoft (Game Pass Ultimate), Sony (PlayStation Plus Premium), and NVIDIA (GeForce Now) pushing the trend.
-Metaverse: Beyond AR/VR, virtual worlds like *Roblox* and *Fortnite* have created immersive, social spaces that keep players engaged beyond traditional gameplay. Companies developing these experiences are attractive targets for firms looking to capitalize on this trend.
-Web3 & Blockchain: Web3 games enable decentralized ownership and in-game economies powered by blockchain. This trend lets players own and trade digital assets, opening new revenue streams and drawing interest from companies exploring the intersection of gaming and crypto.
-AI driven studios: AI is already influencing game development, and its role will only grow. Companies with AI expertise, particularly in game design and player behavior analysis, are becoming highly sought after. As AI reduces development costs, budgets could shift towards live services and marketing.
The Big Picture
The gaming industry is consolidating, with major players acquiring valuable studios and IPs. While there will always be space for indie games—especially as AI lowers the barrier to entry—industry consolidation will likely strengthen the top companies and leave less room for those in the middle.
If a company like Ubisoft, valued at over $12 billion in 2021, is struggling to survive on its own, the future looks bleak for many smaller studios
Although the French gaming company didn’t confirm or deny the speculation, it did state that it’s considering "all strategic options" for the benefit of its stakeholders and will notify the market when necessary
If Tencent proceeds, it would mark another significant acquisition in a wave of major gaming deals over recent years:
- Activision Blizzard acquired by Microsoft for $69 billion in 2023.
- Zynga acquired by Take-Two for $12.7 billion in 2022.
- ZeniMax Media acquired by Microsoft for $7.5 billion in 2021.
- Savvy Games acquired by Scopely for $4.9 billion in 2023.
- Bungie acquired by Sony for $3.7 billion in 2022.
- Glu Mobile acquired by EA for $2.4 billion in 2021.
- Keywords Studios acquired by EQT for $2.4 billion in 2024.
Ubisoft’s valuation sits at just $2 billion, nearly 90% below its peak in 2021! The stock fell by more than 40% in September alone, so this recent surge is only a brief reprieve. Given its diminished value, a potential buyer offering a premium wouldn’t necessarily be a massive win.
So, how should we interpret this news, and what can we anticipate for future gaming M&A activity? Let’s break it down.
Key Points
1.Ubisoft’s Challenges
2.Potential Buyers
3.IP Gold Rush
4.Future of Gaming M&A
1. Ubisoft’s Challenges
Ubisoft has faced setbacks including canceled games, delays, and a dip in quality in the post-pandemic era. Let’s take a look at the fiscal year 2024, which ends in March.
Consider this metric reflects the total amount spent by users within a period, covering game sales, in-game purchases, subscriptions, and downloadable content (DLC). It’s an important measure of business performance, with net bookings recognized as revenue over time, depending on content delivery and user engagement
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 a Week: After the underperformance of Star Wars Outlaws (released at the end of August and originally expected to be a blockbuster) and the delayed launch of Assassin’s Creed Shadows from November to February, Ubisoft revised its FY25 net bookings forecast down to €1.95 billion, a 16% decline year-over-year (compared to the "solid growth" expected earlier). The company now anticipates barely breaking even on an adjusted basis.
The decision to delay Assassin’s Creed Shadows just weeks before its scheduled release was influenced by the poor reception of *Star Wars Outlaws*. However, the three-month delay might not be enough to resolve concerns over game quality or criticisms from the Japanese community regarding historical and cultural inaccuracies.
But that’s not all!
In addition to these financial and operational difficulties, Ubisoft has faced allegations of a toxic workplace. Several former executives from the *Assassin’s Creed* studio were arrested as part of an investigation into sexual assault and harassment.
This situation mirrors the downfall of Activision Blizzard in the months leading up to its acquisition by Microsoft, which leads us to potential buyers for Ubisoft.
2. Potential Buyers
Ubisoft remains a family-run company, largely overseen by its founders.
The latest annual report reveals the following voting rights:
- The Guillemot family controls 20.5%
- Tencent owns 9.2%
In September, minority shareholder AJ Investments claimed it had gained backing from 10% of shareholders and called for Ubisoft to be sold or taken private, estimating a fair value of €40 to €45 per share. With shares currently trading at €13, this seems highly optimistic.
So, who are the likely candidates for a Ubisoft buyout?
Key Players:
-Tencent: Already a significant shareholder, Tencent could increase its stake or seek majority control. As the largest gaming company globally by revenue, Tencent has a history of acquisitions, such as its purchase of Finnish publisher Supercell (*Clash of Clans*) for $8.6 billion in 2016. However, Tencent's aggressive expansion has drawn regulatory scrutiny, especially in the US and Europe, which could complicate any attempt to acquire majority control of Ubisoft.
Guillemot Family: The founding family might be interested in reclaiming greater control of Ubisoft and steering it in a new direction. To finance the buyout, they could collaborate with a private equity firm or a strategic investor. However, given Ubisoft's current size and the significant cost associated with a buyout, it could be difficult for the Guillemot family to pursue this path on their own.
Other Potential Investors: Private equity firms or strategic investors within the gaming sector might also join a buyout consortium. These investors could be drawn to Ubisoft’s valuable intellectual property (IP) and see potential for a turnaround under new leadership.
Gaming Companies: Besides Tencent, the largest gaming revenue players in 2023 are highlighted in the visual.
-Apple and Google: Although both tech giants have been expanding into gaming, acquiring Ubisoft seems unlikely given their current antitrust scrutiny.
-NetEase, EA, and TakeTwo: These companies would find an Ubisoft acquisition to be a straightforward studio consolidation. NetEase, in particular, might find it appealing to broaden its console and PC presence in the West, but Tencent’s involvement could complicate this.
-Sony and Microsoft: As first-party publishers, both would benefit from boosting their subscription services with exclusive content. They’ve aggressively acquired studios in recent years. Given that the Activision Blizzard deal was approved, there’s no reason a Ubisoft acquisition couldn’t pass as well. In their latest fiscal year, gaming accounted for 32% of Sony’s revenue and less than 9% of Microsoft’s.
3. IP Gold Rush
In the gaming industry, intellectual property (IP) is crucial. Iconic franchises like *Call of Duty*, *Mario*, and *Grand Theft Auto* are multi-billion-dollar assets that significantly impact a company’s future. As a result, many companies are eager to acquire established IPs or gain access to the teams behind them.
Why is IP so valuable?
-Lower risk: Developing a new AAA game can cost hundreds of millions and take years, with no guarantee of success. Acquiring a popular IP allows companies to tap into an existing fanbase and reduces the risk of failure.
-Brand power: Consumers are more inclined to purchase games with familiar characters, worlds, or studios behind them. Well-known creators like Hideo Kojima (*Metal Gear*) and Hidetaka Miyazaki (*Elden Ring*) are just as significant.
-Content scalability: Famous IPs can generate revenue through sequels, spin-offs, and licensing deals. Large publishers have the infrastructure to maximize returns across multiple channels.
This strategy isn’t unique to gaming. Media giants follow similar patterns:
-Amazon’s acquisition of MGM: In 2021, Amazon acquired MGM for $8.5 billion, gaining access to franchises like *James Bond* to enhance its Prime Video content.
-Disney’s acquisition of Lucasfilm and Marvel: These acquisitions have delivered massive returns through movies, TV series, and licensing opportunities.
Why now?
-Consolidation pressure: Subscription services and cross-platform gaming are driving consolidation. Big companies want to secure valuable IPs to differentiate their services and attract loyal customers. Meanwhile, smaller studios are more open to selling early to avoid competing in an increasingly crowded and capital-intensive market.
-Value in ownership: Owning IPs in gaming allows companies to create expansive worlds and engage players long-term through updates, expansions, and live services. This keeps players coming back and generates recurring revenue, which is harder to achieve in video content.
-Cross media expansion: Popular games can expand into movies, TV series, or theme parks. For instance, *The Last of Us* became a hit HBO show, and Sony is developing TV adaptations for Horizon Zero Dawn and God of War. This leads to more revenue, a broader audience, and long-lasting IP appeal.
The Ubisoft Angle
Ubisoft’s IPs, like *Assassin’s Creed*, *Far Cry*, and *Tom Clancy’s Rainbow Six*, have significant potential for future growth, despite recent struggles. However, realizing that potential might require new leadership or a fresh strategy, which a new owner could provide.
Even though Ubisoft faces challenges, its strong portfolio might attract various buyers. For the right acquirer, Ubisoft's problems could represent a chance to buy low and rework its creative direction.
As more studios seek to hedge their risks in this changing industry, we can expect more mergers and acquisitions (M&A) in the future.
4. The Future of Gaming M&A
The gaming industry is constantly evolving, and several trends are fueling a surge in mergers and acquisitions:
-Mobile-first: Mobile gaming is the largest and fastest-growing segment, making companies with a strong mobile presence attractive. Examples include Playrix (Gardenscapes,Homescapes) and Scopely (MONOPOLY GO!,Stumble Guys)
-Cross-platform: Cross-platform play is becoming the standard, and companies with expertise in this area are in high demand. Unity and Epic Games play vital roles with their popular game engines, while major studios are also building in-house solutions.
- Cloud gaming: Still in its early stages, cloud gaming has the potential to revolutionize how games are played. Companies with cloud infrastructure are becoming more valuable, with leaders like Microsoft (Game Pass Ultimate), Sony (PlayStation Plus Premium), and NVIDIA (GeForce Now) pushing the trend.
-Metaverse: Beyond AR/VR, virtual worlds like *Roblox* and *Fortnite* have created immersive, social spaces that keep players engaged beyond traditional gameplay. Companies developing these experiences are attractive targets for firms looking to capitalize on this trend.
-Web3 & Blockchain: Web3 games enable decentralized ownership and in-game economies powered by blockchain. This trend lets players own and trade digital assets, opening new revenue streams and drawing interest from companies exploring the intersection of gaming and crypto.
-AI driven studios: AI is already influencing game development, and its role will only grow. Companies with AI expertise, particularly in game design and player behavior analysis, are becoming highly sought after. As AI reduces development costs, budgets could shift towards live services and marketing.
The Big Picture
The gaming industry is consolidating, with major players acquiring valuable studios and IPs. While there will always be space for indie games—especially as AI lowers the barrier to entry—industry consolidation will likely strengthen the top companies and leave less room for those in the middle.
If a company like Ubisoft, valued at over $12 billion in 2021, is struggling to survive on its own, the future looks bleak for many smaller studios
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