‘Watch Dogs’ Success Has Ubisoft Outperforming

Watch Dogs, Ubisoft

Source: Ubisoft

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Ubisoft will report its fiscal Q1:15 (ending June) sales on Thursday, July 10, after the close of the French Stock Exchange (8:30am PT), with a conference call at 9:15am PT (dial-in: 866-907-5928 or IR of www.ubisoftgroup.com).

Expecting a Q1 sales beat driven by better-than-expected sales of the record-breaking new release Watch Dogs. We believe our Q1 sales estimate of €315 million, above guidance of €310 million, will be too conservative given that Watch Dogs sell-in, the key sales driver for the quarter, was likely above the 5 million units in our model. On June 3, Ubisoft announced that Watch Dogs, a May 27 release, had sold-through over 4 million copies in its first week, making it the video game industry’s best-selling new IP at launch and Ubisoft’s best-selling game ever in its first week. Management previously stated that it expected sales of Watch Dogs to exceed those of the first Assassin’s Creed in its first fiscal year, 6.3 million units. We believe that Watch Dogs is well-positioned to easily surpass that figure by YE.

Despite the success of Watch Dogs in Q1, we do not expect a significant increase to FY:15 guidance. Current FY:15 guidance is for sales of at least €1,400 million and non-IFRS operating income of at least €150 million, above FY:14 levels of €1,007 million and €(66) million, respectively. Instead, management will likely opt for a conservative approach given sluggish current-gen sales, declining casual game sales driven by Nintendo’s struggles, and a crowded release slate ahead of the holidays. Also, the potential for franchise fatigue for Assassin’s Creed remains, although we do not expect it to materialize given continued innovation in the series, with Assassin’s Creed Unity’s co-op gameplay expected to drive demand. We expect Assassin’s Creed, Far Cry 4, and Watch Dogs to be among the industry’s best-selling core games this year.

We do not expect much additional color on Ubisoft Motion Pictures. Although there appears to be room for significant upside with seemingly limited and fully discretionary financial exposure, we do not expect a discussion of the potential financial impact as the first movie is expected as early as FY:16.

Maintaining our OUTPERFORM rating and twelve-month price target of €19. Our PT reflects a multiple of 18 times our FY:15 EPS estimate of €1.05. After a few game delays last year, we believe investor patience has been rewarded with a top-notch game slate in FY:15 coupled with robust digital growth.

Michael Pachter is an analyst at Wedbush Securities. 

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