Ubisoft: Tencent's €1.16 Billion Lifeline Erases Debt, But The Turnaround Still Isn't Proven
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Excerpt
The following is a 250-word excerpt from my full article on Seeking Alpha: A crowdsourced financial market content service where investors can share ideas, discuss news, and make informed investment decisions. Below is a link to the full article:
https://seekingalpha.com/article/4848847-ubisoft-stock-tencent-lifeline-erases-debt-but-turnaround-not-proven
Summary
Ubisoft delivered improved H1 results, with net bookings up 20% YoY and operating income returning to positive territory.
Tencent’s €1.16 billion investment eliminated Ubisoft’s net debt and strengthened its balance sheet.
Partnerships and Assassin’s Creed drove performance, highlighting continued dependence on catalog strength rather than new releases.
UBSFY’s forward EBITDA is contracting, and execution risk around its new creative houses business model limits near-term visibility despite a distressed valuation.
Investment Thesis
I assign Ubisoft Entertainment (OTCPK:UBSFY) (OTCPK:UBSFF) a hold rating. Although the company delivered improved H1 results and now benefits from a fully deleveraged balance sheet following Tencent Holdings' (OTCPK:TCEHY) (OTCPK:TCTZF) €1.16 billion investment, the company's core business model is in the middle of a transition. Assassin's Creed is currently carrying the company's portfolio, and partnerships fill the revenue gaps due to a lack of new releases, but the company has a shrinking forward EBITDA, a negative free cash flow, and a clear execution risk given their 'creative houses' operating model that is currently underway and is still to be finalized by the end of the year per the latest earnings call. Ubisoft's valuation is deeply distressed, but it offers meaningful upside if the company's output stabilizes. However, I believe investors need more clear evidence of consistent content production before the company becomes investable. Thus, I believe, for now, that Ubisoft's setup calls for patience as opposed to conviction…
