BUY UBISOFT

E-GAMING, PLAY THE FUTURE

Ubisoft is a BUY for us at these levels as a part of the bigger thematic play in E-Gaming.

2016’s Cyber Monday was the biggest day in the history of U.S. e-commerce. Consumers spent ~$3.45 billion online on Monday. The top two items were eGaming consoles: Sony PS4 and the Xbox One.

Ubisoft’s pipeline is very rich with a number of new releases that will boost its revenue generation. 5 NEW AAA games in H2: Watch Dogs 2, Steep, South Park, For Honor and Ghost Recon: Wildlands.

E-GAMING is the future and the industry will expand dramatically. EA estimate 80M next generation console units will be in place by the end of 2016 and the install base right now is 33% higher than the previous generation consoles. Mobile; internet gamers represent an addressable market of 2.6 billion people world wide.

Ubisoft is targeting digital sales of 990M EUR ($1.1B) by fiscal 2018-19, doubling from 2015-16, which should boost its gross margin, operating profit and FCF.

On top of that there is Vivendi who has, once again, increased their shareholding in Ubisoft. Vivendi announced it crossed the statutory threshold of 24% of Ubisoft’s share capital on November 4, 2016. The current 24.059% of the share capital and 21.296% of the voting rights of Ubisoft, is an increase from the 22.8% of the share capital and 20.2% of the voting rights announced in July.

Vivendi has taken a 24.1% stake in Ubisoft as it seeks to rebuild a video game business following the purchase of Gameloft in July. Ubisoft’s founding Guillemot family has increased its stake in the company to 19.2% in a bid to ward off Vivendi, setting up a showdown should Vivendi seek board seats.

Ubisoft’s “as is” standalone strategy is strong and its main idea is to embrace a digital first policy. Key focus is on product and here we feel upcoming titles from Ubisoft look impressive. Ubisoft will be the only leading developer to launch three open world games this year: ‘Steep’, ‘Ghost Recon’ and ‘Watch Dogs 2’.

E-GAMING is a future for revenue generation, as the population playing online video games via consoles and mobile is growing and already has 2.6B users world wide. UBI has great pipeline that will secure its revenue generation in the LT.

With both stand alone strategy, M&A on horizon and rich pipeline we feel this is a good level (19% off the YTD highs) and time to initiate a BUY position.