Ubisoft Earnings Recap: Well Above Expectations

Ubisoft earnings for Q1 came in well above expectations. Q1 sales were €103 million, compared with our estimate of €95 million, and guidance of €90 million. Strong performers included catalog titles (up 84% to €68 million due primarily to Assassin’s Creed Brotherhood and the dance games), new releases Child of Eden and Michael Jackson The Experience on Kinect, and online sales (up 45% to €12.5 million due in large part to Xbox Live titles Outland and Might & Magic Clash of Heroes).

Ubisoft maintained FY:12 guidance for revenue of €1.04 – 1.08 billion and operating income of €40 – 60 million. The company initiated Q2 revenue guidance of €99 million, well below our prior estimate of €174 million. Although management attributed the surprisingly low Q2 revenue number in part to prudent early sell-in of new release Driver San Francisco (360, PS3, Wii, PC), we feel that it reflects overall weak expectations for Driver and fellow new release Call of Juarez: The Cartel (360, PS3, PC), as well as additional game delays.

We are maintaining our FY:12 estimates for revenue of €1.09 billion and EPS of €0.32. We are lowering our Q2 estimates based on the release schedule provided by the company, as we believe many releases are now likely to occur in the second half of the year. We are also maintaining our FY:13 estimates for revenue of €1.19 billion and EPS of €0.62.

Although Ubisoft had multiple game announcements at E3 (Brothers in Arms: Furious 4, Far Cry 3, and Just Dance 3) and features many high-profile franchises (Assassin’s Creed and Tom Clancy), its share price continues to be hindered by an unclear release schedule with recurring delays. For example, within its Tom Clancy franchises, the last Ghost Recon release for HD consoles was in 2007 and the last Rainbow Six release was in 2008. Until Ubisoft provides detailed long-term release schedules and adheres to them, we expect its stock to trade at a discount to its larger, more dependable peers.

Michael Pachter is the video game analyst at Wedbush Morgan.

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