Investing.com -- Shares of Ubisoft (EPA:UBIP) fell on Monday following a strategic update that flagged the company's ongoing challenges and potential shifts in ownership.
At 5:55 am (0955 GMT), Ubisoft was trading 2.4% lower at €13.86.
As per analysts at HSBC, recent reports suggest that the Guillemot family, along with Tencent, is contemplating a move to take the gaming giant private.
While this buyout speculation could provide some stability, it also raises questions about the broader interest in Ubisoft amid its operational hurdles.
The gaming sector has seen a marked decline in potential buyers, particularly as interest from console makers, large tech firms, and private equity groups has waned since the pandemic's peak.
This lack of enthusiasm for expansion into video gaming underscores the tough landscape Ubisoft faces, especially in light of its ongoing restructuring and execution challenges.
Analysts believe that the current state of Ubisoft's operations—marked by a bloated workforce and a lack of visibility on its future game pipeline—diminishes the likelihood of an alternate buyout offer.
Additionally, the analysts note the complications that could arise from Ubisoft's existing agreement with Microsoft (NASDAQ:MSFT) concerning cloud gaming rights for Activision Blizzard (NASDAQ:ATVI), which may impose contractual barriers in the event of a change in ownership.
As a result, the prospect of a takeover by any new entity seems increasingly unlikely.
Despite the speculation surrounding a potential buyout, analysts remain cautious. They flag the significant execution risks surrounding Ubisoft's upcoming game releases, particularly following recent profit warnings that have exacerbated concerns about the company's profitability.
The anticipated release schedule for major titles, previously thought to provide some reassurance, is now viewed with skepticism due to heightened execution risks compared to past launches.
In light of these factors, HSBC has adjusted its target price for Ubisoft to €15.40 from €10.80, reflecting the removal of a valuation discount in anticipation of a possible buyout.
This adjustment suggests an 8.5% upside, but the analysts have maintained a "hold" rating on the stock, pointing out that the potential for earnings downside remains a significant concern.
While the potential for a buyout from the Guillemot family and Tencent is generating some buzz, analysts caution that the structural challenges facing Ubisoft cannot be overlooked.
The company possesses a strong portfolio of intellectual property, including highly successful franchises like Assassin’s Creed and Tom Clancy.