Ubisoft Entertainment (OTCPK:UBSFY) fell 6% in U.S. trading Thursday (and dropped 7% in Paris trading) alongside a downgrade at Stifel to Hold, from a previous Buy.
That’s due to a combination of factors, analyst Drew Crum points out, including “what we view as overly ambitious FY2023 guidance, execution risk around the company’s slate over the intermediate/longer-term, and reduced expectations for a takeout scenario.”
Guidance for 10% growth in net bookings implies a second-half figure of €1.8B, or about €300M over a previous record, he notes. Between well-documented macro headwinds and what looks like a lighter game slate, “we’re less confident in the near-term outlook.”
He adds that for three straight years, the company has also downgraded at least some part of its original guidance. Execution is a risk given the company’s recent performance as well.
As for Tencent’s (OTCPK:TCEHY) boosting its stake in Ubisoft, that reduces the likelihood of any “imminent takeout,” a prospect that had lifted the shares more recently, he said.
Valuation looks “reasonable” but might be “artificially depressed with accompanying earnings risk.” The firm cut its price target to €35 per share, meaning implied upside from Thursday’s Paris close is 15%.
Earlier in September, Tencent had said it would more than double its holdings in Ubisoft through a minority stake in the founding Guillemot brothers’ family business.
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