Ubisoft (EPA: UBI) released their full year results on Thursday evening and the numbers were once again very impressive. As a result, the share price shot up once again by 4.5% on Friday, and the company’s valuation now stands at €9.45bln. The share price is now hovering around 88p, around 30% up from the share price when we called out Ubisoft as a share to watch earlier this year
Let’s take a look at some of the highlights of the release:
- Total annual sales were up 18%, @ €1.7Bln , vs the target set by the company of €1.64Bln.
- Non IRFS income was €300 mln vs a target of €270 mln. At €300 mln, the company is currently being valued at a 30X multiple after Friday’s share price rise.
- Annual digital revenue increase are are now over €1 bln, representing 58% of total sales.
- Back catalog sales were up 27% at €826 mln.
It’s important to note that the share price increased on Friday, although Ubisoft advised that one of their upcoming releases Skull and Bones would be pushed back to the following financial year. The company will now only be releasing 3 AAA titles in FY 2019 (The Crew 2, The Division 2 and 1 unnamed title). Nevertheless, Ubisoft has still maintained the targets for the new FY of Non IRFS income of €440 mln, even with this delay. The fact that the company can do this, highlights how important digital sales have been to the company’s profitability.
Digital sales effectively allows Ubisoft to cut out the middle man and sell directly to the consumer. Because of this, Ubisoft can achieve much higher profitability in an environment where they have decreased overall sales targets (as a result of the delayed Skull & Bones title). As the transition to digital becomes more pervasive in the gaming industry, profitability is likely to increase for Ubisoft as a result year after year. In fact, the CEO specifically mentioned in the release that the transition to digital is occurring at a faster pace than expected.
The CEO also made reference to the company’s opportunities in China in the PC and mobile gaming markets. Certain restrictions have been lifted in China in the recent past and earlier this year, Tencent, the worlds largest video game company, purchased shares in Ubisoft with the intention of acting as a distributor for Ubisoft’s titles, in China. Given that China has a population of 1 billion, and the fact that China’s middle class is growing every year, the potential for increased revenues in the Chinese market is significant.
In summary, Ubisoft looks like a good long term buy to me, even at the current share price. The company has a lot of great things to look forward to in its future. Such things include the untapped potential of the Chinese market, the continued digital transformation over the next couple of years, and the expanding markets for their products e.g Virtual Reality & Esports.
As always though, please do your own research before buying/selling this share; the opinions above are only my personal views and should not be considered as advice.
