What's ailing Ubisoft? | Opinion

Since its IPO almost thirty years ago, the corporate history of Ubisoft has been defined, to some degree, by battles with various attempts to take over or wrest control of the company.

At the time of that IPO it was still primarily a European distributor for other companies' games, and the ambitions that would lead it to become a major publisher and developer of its own titles were still in their infancy. Within just a few years, a series of smart decisions had put Ubisoft firmly on the map as a global publisher with a handful of key IPs under its belt – which, in turn, put it in the crosshairs of larger companies seeking to grow through acquisition.

EA bought almost 20% of the firm in 2004, which Ubisoft executives feared was the prelude to a hostile takeover attempt. EA ultimately sold its shares in 2010, but just a few years later Ubisoft faced a much more serious takeover attempt, with the founding Guillemot family engaging in a three-year corporate battle to try to prevent media giant Vivendi from gaining a controlling share of the company.

You can see the marks those battles have left on the company just by zooming out on its share price graph. If you just look back a few years, Ubisoft's share price performance looks thoroughly miserable, with the company having lost around half its value in the past year, and generally having a wretched time of it every year since 2020.

The pandemic-era spike in valuations for games companies was extremely short-lived for Ubisoft; it peaked in early 2021 and has tumbled precipitously since then. Its latest stumble came in the past couple of weeks with share prices dropping off again in the wake of what appears to be a commercially disappointing launch for Star Wars: Outlaws.

Look back a bit further, though, and you see some much-needed context.

Ubisoft's incredibly high valuations in the years running up to 2020 were largely a hangover from that corporate battle with Vivendi, which saw the Guillemot family pulling out every trick in the book to increase their shareholding and voting rights, while Vivendi paid increasingly high prices to gobble up more shares in search of the elusive 30% holding that would let them trigger a tender for a buyout.

These tactics worked; by the time Vivendi got near that target in 2017, Ubisoft's share price had soared to almost ten times higher than it was when Vivendi bought its initial 10% of the stock in 2015. Between that dramatic price tag inflation and the Guillemots' various efforts to lock in their control over the company, Vivendi ultimately gave up, selling a bunch of its shares to Tencent as it departed the field.

That left Ubisoft with an odd problem – a share price that had been inflated beyond reason by the corporate battling, and the inevitability of some very rough years on the stock market to come as that price inevitably regressed towards the mean.

Ubisoft remains an incredibly important part of the games landscape, and everyone working in the industry, especially in Europe, would benefit from it being in a healthier and better-managed state

This is not to say that Ubisoft's performance in subsequent years hasn't been bad on its own terms – it has, in fact, been pretty terrible. Ubisoft's valuation now is somewhere near to where it was back in 2015 when Vivendi first started its bid. That's not just mean regression; that's suggesting that the company hasn't made meaningful progress in the past decade (at least in the admittedly jaundiced and often myopic eyes of the stock market).

Investors in Ubisoft have, at best, seen no return at all in that time; at worst, some have seen nearly 90% of the value of their investment wiped out. The most recent valuation slides, as one of the company's two great hopes for this year (the other being Assassin's Creed: Shadows) has stumbled out of the gate, is just insult to injury.

You can almost imagine CEO Yves Guillemot feeling a little relieved, then, when a so called activist investor came out of the woodwork a few days ago with an open letter demanding, in essence, that Ubisoft offer itself up for takeover by a private equity company.

Here, at least, is a familiar battleground for Ubisoft's leadership – a hostile investor threatening to force a takeover and defenestrate the founding Guillemot family! That's a boss battle they've fought very successfully against far tougher opponents than a minor investor nobody has ever heard of and who, by his own admission, has owned less than 1% of Ubisoft for about two weeks.

It's a far preferable fight to the internal soul-searching Ubisoft really needs to be doing about why it's falling so far behind its industry rivals by so many commercial metrics, and what's gone wrong with the management of its development pipeline.

I would actually suggest that you go and read the open letter in question, because the reporting in both the financial and specialist press has arguably been a little too kind to its author. It's amateurish stuff for the most part, reading more like an energy drink-fuelled post on infamous meme-stock spawning ground r/WallStreetBets than a serious piece of analysis or investment strategy. From consistently misnaming some of Ubisoft's most important IPs to betraying an extremely surface-level understanding of how the games business actually works, it's not really the kind of letter a major company or its investors should be taking seriously.

Entirely unsurprisingly, the prescription offered for all that ails Ubisoft turns out to be exactly the same snake oil that's hawked as a corporate cure-all in every business – sell out to private equity, who will proceed to slash headcount, sell off various studios and other assets, and no doubt shake their heads in sad surprise a few years down the line when the drained husk of the company collapses in on itself.

And yet. For all that this open letter has little to offer either in diagnosis or prescription for Ubisoft's ailments… Well, the core thesis that the ailments are bad and showing no sign of improvement isn't wrong, is it?

The basic facts are clear; Ubisoft doesn't stack up well with its publisher peers in terms of its commercial success. It underperforms by almost any metric, in fact; whether you look at bottom line financial numbers, or slice them up according to revenue-per-headcount, or consider the commercial performance on a per-title basis, Ubisoft doesn't match up to other companies in the industry.

It has a solid set of well-known and popular IPs – Assassin's Creed, Prince of Persia, Tom Clancy, Far Cry, etc. – but it has consistently struggled in recent years to translate that into serious commercial success. Attempts to develop new IP haven't gone well of late; Skull & Bones is the most costly and high-profile cock-up by some margin, but even with seemingly untroubled and smooth development cycles, projects like XDefiant (an attempt to build a Call of Duty competitor) have seemingly failed to hit commercial targets.

These problems aren't unique to Ubisoft, of course. Lots of companies have projects that descend into the depths of development hell – though usually not for quite as long, or in quite such a dramatic way, as Skull & Bones did – and almost every company in the industry has blotted its copybook with an attempt to snatch away some market share from a money-printing machine like Call of Duty or Fortnite in recent years.

Ubisoft's core problem is that it lacks its own money-printing machine, a business pillar like Activision's Call of Duty, EA's sports games, or Take Two's GTA Online

You could argue that that's actually a hint as to Ubisoft's core problem: it lacks its own money-printing machine, a business pillar like Activision's Call of Duty, EA's sports games, or Take Two's GTA Online, which reliably churn out large amounts of cash year after year. Most of Ubisoft's strategic decisions make some kind of sense if you view them as attempts to find such a business of their own, though a less charitable take would note that these attempts have generally been pretty poor – XDefiant is arguably the best of them, but its odds of snatching market share from Call of Duty never looked especially good.

Ubisoft does have success stories, of course – this is still a company with billions in revenue, let's not pretend it's a sinking ship – but investors aren't wrong to think that performance could be a lot better.

There's a fair argument to be made that Ubisoft is a bloated company – its headcount is much higher than comparable rivals in the industry, although in part that's because of a philosophy of keeping development in-house to a large extent, whereas many other publishers' true headcount is disguised by their extensive use of outsourcing.

That doesn't tell the full story, though – even given that caveat, it remains the case that Ubisoft has a hell of a lot of staff and publishes a hell of a lot of games, but fails to generate revenues on a per-employee or per-game basis that compare to rivals. That suggests a problem at a high level within the company; an editorial problem. Decisions being made at an executive level are failing to focus the company's efforts effectively; games are being made en masse and thrown at a wall to see what will stick, which reflects a failure to utilise resources productively and make smart decisions about the product pipeline.

That leads us, inevitably, back to the very top of the company – to Yves Guillemot and to the executives around him, and the family that has fought so hard to maintain its grip on Ubisoft over the decades.

If Ubisoft's problems are editorial, well, the ultimate arbiter of editorial decision-making at a publisher is the CEO – especially a founder-CEO that has reigned for more than 30 years and whose family wields such power within the company. Guillemot has truly fought tooth and nail to stay at the top of Ubisoft for all these years, and has shown himself to be a crafty and resourceful boardroom warrior, using every tool at his disposal to manoeuvre between giant corporations like EA, Vivendi, and Tencent, even turning their strength against one another on occasion to suit his purposes.

Yet that skill isn't the same as the skill and insight required to direct a product slate or make good strategic decisions for where a game publisher's resources should be focused. It's not unfair for investors to question whether the current leadership has really been showing those skills of late.

Ubisoft's share price had been inflated beyond reason by years of corporate battling

The cure on offer from the activist investor, of course, is far worse than the disease. A private equity firm coming in to fire staff and strip assets would be the death knell for Ubisoft in the medium term. Selling out to private equity is the corporate equivalent of sending the horse to the glue factory, not some magical pathway to improved management and oversight.

Ubisoft remains an incredibly important part of the games industry landscape, and everyone working in the industry, especially in Europe, would ultimately benefit from it being in a healthier and better-managed state – which will not be achieved by bringing in a bunch of fresh-faced MBA-wielders to slash and burn. It may, however, also be hard to achieve that healthier and better-managed state without real change at the top of the company.

After a bruising and poorly-handled series of revelations in 2020 that exposed an abusive culture encompassing many senior staff, Ubisoft's leadership was hollowed out, but Guillemot remained in place; since then the company has pivoted first to a focus on mobile and F2P, then to an ill-advised commitment to blockchain, all the while with a product line-up looking increasingly in need of much more effective editorial oversight.

With such a powerful CEO, there's only one desk for the buck to stop on. Yves Guillemot has devoted much of his life to building this company, but investors and stakeholders are justified in asking, at least, that he properly demonstrate that he's still the right person to lead it through its current challenges.